Does the Power to Appoint an Administrator Come from the Contract or the Statute?

I. Introduction

The enactment of the Insolvency Act, 2015 marked a substantial shift in Kenyan insolvency law. For decades prior, the primary remedy for a secured creditor was the appointment of a receiver or receiver/manager under the repealed Companies Act. That remedy has been widely criticised for its tendency to preside over the “death” rather than the rescue of a distressed company. The Insolvency Act, 2015 introduced administration as a rescue-oriented mechanism, designed to give financially distressed but viable companies breathing space.

Central to this framework is the out-of-court appointment of an administrator. Unlike an administration order, which requires court approval, an out-of-court appointment takes effect upon compliance with statutory filing and publication requirements. It is faster, cheaper, and largely free from judicial supervision at the point of appointment.

This mechanism is not available to every secured creditor. Section 534(2) of the Insolvency Act defines a qualifying floating charge as one created by a document that either states that Section 534 applies to the floating charge, or purports to empower the holder of the floating charge to appoint an administrator of the company.

The difficulty arises when one applies this definition to debentures executed before 18 January 2016. A debenture drafted in 2013 or 2014 could not have referenced a statute that did not yet exist. Equally, such instruments typically empowered the holder to appoint a receiver or manager, a term that had no statutory counterpart in the new Act. The word administrator, as a term of art, did not exist in Kenyan law before 2015.

It is in this gap between old contracts and new statutes that the High Court has divided. The disagreement is a divergence that runs along a divide between debentures created before the Insolvency Act 2015 and those created after it, and it is important to keep that distinction in view.

II. Understanding the Two Remedies. Administration and Receivership

The distinction between administration and receivership lies at the heart of the controversy. The terminology matters because the cases turn on whether the functions and legal character of these two offices are equivalent.

Receivership is a remedy that predates the Insolvency Act by many decades. A receiver or receiver/manager is appointed by a secured creditor, typically under the terms of a debenture or floating charge, upon the debtor’s default. The receiver’s primary duty is to realise the charged assets for the benefit of the appointing creditor. A receiver/manager, as distinct from a mere receiver, also has the power to carry on the business of the company, but that power is exercised principally for the benefit of the debenture holder.

The receiver/manager is an agent of the company, but the agency is heavily weighted in favour of the secured creditor who appointed him. As the court observed in I&M Bank Limited v ABC Bank Limited & Another [2021] KEHC 12977 (KLR) that a receiver/manager appointed under a debenture “is not an officer of the court although the court may intervene in certain instances in performance of its duties. It does not have the responsibilities and obligations to the general body of creditors, whether secured and unsecured and cannot be called upon to account as such but is an agent of the company or the debenture holder.” Historically, receivership was criticised because it often resulted in the destruction of the company’s business, as the receiver’s focus was on recovering the creditor’s debt rather than preserving the enterprise.

Administration was introduced by the Insolvency Act, 2015 as a distinct and more sophisticated rescue mechanism. An administrator is an officer of the court under Section 525, whether appointed by the court or out of court. The administrator’s statutory objectives under Section 522 are:

(a) first, to maintain the company as a going concern;

(b) second, to achieve a better outcome for the company’s creditors as a whole than would be achieved in liquidation; and

(c) third, to realise property for distribution to secured or preferential creditors.

Crucially, the administrator owes duties to the general body of creditors, not merely to the appointing creditor. Section 522(2) provides that the administrator “shall perform the administrator’s functions in the interests of the company’s creditors as a whole.” Administration also brings with it a statutory moratorium on legal proceedings against the company under Section 560, giving the enterprise breathing space to restructure. As the court in Mitini Scapes noted, an administrator is required to “perform the administrator’s functions as quickly and efficiently as is reasonably practicable” bearing in mind the collective objectives of administration.

The legal character of the two offices is therefore different. A receiver/manager is an agent of the debenture holder and owes fiduciary duties primarily to that creditor. An administrator is a statutory officer owing duties to the collective creditor body. The powers may overlap, particularly where the receiver/manager is empowered to carry on the business. But the legal nature of the appointment, the source of the officer’s authority, and the duties owed are not identical.

This distinction is central to the controversy. The restrictive line of cases holds that because the two offices are legally different, a power to appoint a receiver/manager cannot be equated with a power to appoint an administrator. The purposive line holds that because the functions are substantially similar in practice, the holder of a power to appoint a receiver/manager should be deemed to have the power to appoint an administrator. The tension between these two positions is what the courts have grappled with.

III. The Coexistence of Remedies Under the Insolvency Act 2015

The Insolvency Act creates a framework in which receivership and administration coexist but apply to different categories of debentures. For debentures created before the Insolvency Act 2015, receivership remains available under Section 690(4). That provision generally prohibits the appointment of an administrative receiver after the Act came into force, but expressly excludes floating charges created before the commencement date. The Court of Appeal in Athi River Steel Plant Ltd v Rao & 4 Others [2024] KECA 585 (KLR) confirmed that holders of floating charges created before the Insolvency Act 2015 retained the right to appoint receivers/managers under this transitional provision. The court held that “the courts cannot rewrite a contract between the parties” and that the contractual enforcement mechanism, including the appointment of a receiver/manager, was an integral part of the agreement between the parties.

For debentures created after the Insolvency Act 2015 that do not qualify under Section 534, the only route to administration is through court application under Division 3. For debentures created after the Insolvency Act 2015 that do qualify under Section 534, out-of-court appointment of administrators is available.

This dual regime requires creditors and their advisors to understand the historical context of their security documents and to choose the appropriate remedy based on the circumstances. A creditor holding a debenture created before the Insolvency Act 2015 may appoint a receiver but may face challenge if it attempts to appoint an administrator out of court. A creditor holding a debenture created after the Insolvency Act 2015 that expressly invokes Section 534 may appoint an administrator out of court. A creditor holding a debenture created after the Insolvency Act 2015 that does not expressly invoke Section 534 must apply to court.

The moratorium distinction is also important. During administration, Section 560 provides that no resolution may be passed to wind up the company, and no steps may be taken to enforce security over the company’s property except with the consent of the administrator or permission of the court. This moratorium gives the administrator breathing space to formulate rescue proposals without interference from other creditors. In receivership, no such moratorium applies. Other creditors remain free to pursue their own remedies, including liquidation.

IV. The Origin of the Disagreement. In re Arvind Engineering Limited (2019)

The first notable decision was In re Arvind Engineering Limited [2019] KEHC 12266 (KLR). The bank held debentures executed in 2014 and 2015. Those instruments empowered the bank to appoint a receiver and manager. The bank appointed an administrator. The company challenged the appointment.

Tuiyott J, as he then was, adopted a purposive approach to statutory interpretation. He observed that the functions of a receiver and manager, particularly the power to carry on the business and preserve the company as a going concern, overlap substantially with the objectives of administration under Section 522.

“To be emphasised is the role of a Receiver and Manager in superintending and managing the Company as a going concern not only in the best interest of the debenture holder but also the Company. This is also one of the central objectives of Administration.”

From this functional equivalence, the learned judge concluded that Section 534(2)(b) should be read expansively so as not to disadvantage holders of debentures created before the Insolvency Act 2015. Since the bank could appoint a receiver and manager whose powers were akin to those of an administrator, the bank was deemed to have the power to appoint an administrator. It was therefore a holder of a qualifying floating charge.

The appointment was not revoked, though it was suspended on separate grounds relating to parallel proceedings.

This decision opened a door for holders of debentures created before the Insolvency Act 2015. It also left a critical question unanswered. How far can a purposive interpretation stretch the text of Section 534(2) before it ceases to be interpretation and becomes amendment? That question would return in the later cases.

V. The Restrictive Response. I&M Bank Limited v ABC Bank Limited (2021)

Four years later, I&M Bank Limited v ABC Bank Limited & Another [2021] KEHC 12977 (KLR) provided a direct answer. The debenture in question was executed in 2014 and empowered ABC Bank to appoint a receiver or manager. ABC Bank appointed administrators. The appointment was challenged.

Majanja J, began with the definition of administrator in Section 520. The section defines an administrator as a person appointed under that Part to manage the company’s affairs and property. The words “under this Part,” the learned judge held, were decisive. A receiver or manager appointed under a debenture created before the Insolvency Act 2015 is not appointed under that Part. He is appointed under the contract and the repealed Companies Act.

The court further held that a receiver or manager and an administrator are not the same office, notwithstanding functional similarities. An administrator is an officer of the court under Section 525, owing duties to the general body of creditors. A receiver or manager is an agent of the debenture holder and owes no equivalent fiduciary duty to unsecured creditors.The court stated that:

“Although the functions of a receiver/manager may be conterminous with those of an administrator under the Insolvency Act, they cannot be equated, nor can the power to appoint a receiver or receiver manager under a debenture predating the Insolvency Act be equated to the power to appoint an administrator under section 534. This difference is not merely textual; it is substantive.”

The consequence was that ABC Bank’s appointment of administrators was declared null and void. The bank retained the right to appoint a receiver, a right preserved by the transitional provisions of Section 734(2), but if it wished to pursue administration, it had to apply to court under Section 532(1).

VI. The Disagreement Deepens. I&M Bank Limited v Mitini Scapes Development Limited (2025)

I&M Bank Limited v Mitini Scapes Development Limited [2025] KEHC 5491 (KLR) brought the controversy into sharper focus. The debenture was executed on 12 June 2013. It empowered the bank to appoint a receiver or manager. The bank appointed administrators. The company challenged.

Visram J acknowledged the contradiction at the outset with candour.

“I take note from the outset that the contradictory decisions referred to and relied on by both parties emanate from the High Court. At present, the Court of Appeal has not pronounced itself on this issue, and therefore, I am not bound by either of the decisions.”

The learned judge then made an observation of some interest. On the merits, he preferred the purposive approach of Arvind Engineering. He noted that the objectives of administration and the powers of a receiver or manager were substantially similar. He even observed that removing the option for immediate appointment on the basis that a floating charge pre-dates the Insolvency Act 2015 appears illogical, particularly given the delays and backlog in the courts.

Yet he felt constrained by the statutory text. Section 520’s phrase “under this Part” and Section 534(2)’s express requirements, read together, preclude a holder of a debenture created before the Insolvency Act 2015 from appointing an administrator in accordance with Division 4.

He invited Parliament to amend Sections 520 and 534. As the law stood, however, the appointment had to be revoked.

Mitini Scapes therefore embodies a tension that runs through this entire controversy. The policy arguments favour one outcome, but the statutory text appears to compel another. It is worth noting that the case concerned a debenture created before the Insolvency Act 2015. It does not, by itself, determine the position for debentures created after the Act came into force.

VII. A Different Path. Northcote Business Centre Limited v KCB Bank Kenya Ltd (2026)

Northcote Business Centre Limited & 3 Others v KCB Bank Kenya Ltd & 2 Others [2026] KEHC 9121 (KLR) introduced a new dimension to the debate. The debentures in question were executed in 2020, 2021, and 2022, all after the Insolvency Act came into force. The case therefore did not involve the transitional problem that lay at the heart of Arvind, ABC Bank, and Mitini Scapes.

The applicants argued that the appointment was invalid because the debenture did not expressly authorise the appointment of an administrator. Clause 13 empowered the bank to appoint a receiver or receiver-manager only.

Rutto J rejected this argument and made a statement with potentially far-reaching implications.

“The power to appoint an administrator, however, does not arise solely from the contract. Once a creditor satisfies the statutory requirements applicable to a holder of a qualifying floating charge under the Insolvency Act, it itself confers the right to appoint an administrator under Section 522. The source of that power is therefore statutory rather than purely contractual.”

This reasoning effectively sidesteps the core controversy under Section 534(2). Rather than asking whether the debenture purports to empower the appointment of an administrator, the court asked only whether the debenture created a floating charge over substantially the whole of the company’s undertaking. If it did, the statutory power arose automatically.

If adopted more widely, this reasoning could resolve the controversy in favour of the permissive view, but only for debentures created after the Insolvency Act 2015.

VIII. The Court of Appeal’s Limited Intervention. Athi River Steel Plant Ltd v Rao (2024)

Secured lenders had hoped that the Court of Appeal would resolve the controversy in Athi River Steel Plant Ltd v Rao & 4 Others [2024] KECA 585 (KLR). That case concerned floating charges created between 2010 and 2014. The banks appointed a receiver or manager. The company challenged.

The Court of Appeal upheld the appointment, relying principally on Section 690(4) of the Insolvency Act. That provision generally prohibits the appointment of an administrative receiver after the Act came into force, but expressly excludes floating charges created before the commencement date. The court also invoked the sanctity of contracts, holding that the courts cannot rewrite a contract between the parties.

It is important to be precise about what the Court of Appeal decided. Athi River Steel concerned receivership, not administration. The Court of Appeal confirmed that holders of floating charges created before the Insolvency Act 2015 retained the right to appoint receivers. It did not address whether those same debentures could ground an out-of-court appointment of an administrator under Section 534.

The appellate intervention was therefore partial. It provided certainty in the receivership context but left the administration question unresolved.

IX. The Nature of the Disagreement

The High Court’s division can be understood as a clash between two competing judicial philosophies. The restrictive approach, associated with ABC Bank and Mitini Scapes, begins with textual fidelity. The words “under this Part” in Section 520 and the explicit requirements of Section 534(2) are treated as establishing a threshold that cannot be crossed by functional analogy. The virtue of this approach is its respect for legislative authority and its predictability. Its cost is that holders of debentures created before the Insolvency Act 2015 are denied access to the out-of-court appointment mechanism, which is precisely the mechanism Parliament created to facilitate swift corporate rescue.

The purposive approach, associated with Arvind Engineering, begins with legislative purpose. The Insolvency Act’s central mission is to promote rescue, and excluding holders of debentures created before the Insolvency Act 2015 from the out-of-court route arguably frustrates that mission. The virtue of this approach is its alignment with the Act’s objectives. Its risk is that it may stretch statutory language beyond its natural meaning.

Northcote represents a third possibility. It treats the appointment power as an independent statutory incident of holding a qualifying floating charge, thereby making the express terms of the debenture less critical. This reasoning has not yet been tested in the context of debentures created before the Insolvency Act 2015, and it remains to be seen whether it will be extended there.

It is also worth stating plainly what the cases do not decide. None of the decisions has held that a debenture created after the Insolvency Act 2015 which creates a floating charge over substantially the whole undertaking, but which is silent on administration, is incapable of grounding an out-of-court appointment. Northcote suggests the contrary. Equally, none of the decisions has held that a debenture created before the Insolvency Act 2015 which mentions only receivership can ground administration as a matter of course. ABC Bank and Mitini Scapes suggest the contrary. The unresolved question is whether Northcote’s reasoning, if extended to debentures created before the Insolvency Act 2015, would override ABC Bank and Mitini Scapes. That question has not been decided.

X. Practical Implications for Lenders and Practitioners

Until the Court of Appeal resolves the disagreement, secured lenders must operate in a landscape of genuine uncertainty. The following practical steps are recommended.

First, for new debentures, draft expressly for Section 534. Do not rely on receivership clauses to imply a power of administration. A well-drafted debenture should state expressly that Section 534 of the Insolvency Act applies to the floating charge. It should use the statutory language of administrator and expressly empower the holder to appoint one. It should also preserve both receivership and administration as alternative enforcement remedies. Drafting in this way satisfies both limbs of Section 534(2) and removes the ambiguity that has generated the litigation.

Second, for existing debentures created before the Insolvency Act 2015, consider whether a supplemental debenture or deed of confirmation can be executed. If the borrower cooperates, this is the cleanest way to eliminate the ABC Bank and Mitini Scapes risk. It brings the security within the express terms of Section 534 and avoids reliance on the purposive reasoning in Arvind Engineering, which has not been followed in the more recent cases concerning debentures created before the Insolvency Act 2015.

Third, where no supplemental documentation is possible, assess whether an out-of-court appointment is worth the risk of challenge. The restrictive view currently commands two reasoned High Court decisions on debentures created before the Insolvency Act 2015. The permissive view commands one. An application under Section 532 for a court-appointed administrator may be the more prudent course, notwithstanding the additional time and cost.

Fourth, for debentures created after the Insolvency Act 2015 that are silent on administration, Northcote offers a basis for arguing that the statutory power arises independently of the contract. That reasoning has not yet been tested at the appellate level, and lenders relying on it should be prepared for challenge. The safer course remains express drafting.

XI. Conclusion

The controversy over the qualifying floating charge question reflects a deeper tension in transitional statutory interpretation. When a rescue-oriented statute encounters contracts drafted under a different legal regime, courts must choose between fidelity to text and fidelity to purpose. ABC Bank and Mitini Scapes chose text. Arvind Engineering chose purpose. Northcote sought a third way, but in the context of debentures created after the Insolvency Act 2015.

The Court of Appeal has not yet resolved the administration question. Its decision in Athi River Steel addressed receivership only. Until the appellate courts speak definitively, secured lenders face a legal environment in which the effectiveness of their security may depend on the age of the debenture and the judge who hears the challenge.

The prudent response is contractual precision. Draft for Section 534 expressly. Supplement legacy debentures where possible. Monitor appellate developments closely. For those who lend against the security of floating charges in Kenya, the quality of the drafting may prove to be the difference between a swift rescue and a protracted courtroom battle.

Authored by Benson Odiwuor Otieno, Advocate of the High Court of Kenya.

This article is a publication of the Litigation Practice Notes series, featured in The BOLD Newsletter. For questions, clarifications, or suggestions on this or related subjects, contact the author directly: insights@bensonodiwuor.com / info@benodiwuor.com.