The Insolvency Act came into law on the 11th September 2015 which technically repealed the Companies Act (Cap 486) and the Bankruptcy Act of Kenya (No. 32 of 1930).
The new Act unlike the previous laws seeks to redeem insolvent companies through administration as opposed to liquidation which was the norm. It focuses more on assisting insolvent persons and companies whose financial position can be redeemed to continue operating so that they may be able to meet their financial obligations to the satisfaction of creditors.
ARM Cement became one of the first companies in Kenya to face the new law. ARM Cement fell into trouble when the clinker plant it built in Tanzania failed to generate enough income and instead became a cost to the group. At the time the company had taken loans to finance its expansion. This prompted the lenders to make an application for administration which was granted on 17th August 2018. The Company was placed in the hands of PwC’s Muniu Thoithi and George Weru, who were named the Joint Administrators of ARM Cement Plc.
Since being put under administrations there have been rumours of employees’ mistreatment by the administration and sacking threats. ARM Cement employees are said to be in a limbo as they are not sure what is next. However, these employees have rights as per the Insolvency Act summarized as follows:
(a) All wages or salaries payable to employees in respect of services provided to the bankrupt or company during the four months before the commencement of the bankruptcy or liquidation.
(b) Any holiday pay payable to employees on the termination of their employment before, or because of, the commencement of the bankruptcy or liquidation.
(c) Any compensation for redundancy owed to employees that accrues before, or because of, the commencement of the bankruptcy or liquidation.
(d) Any reimbursement or payment provided for, or ordered by the Industrial Court under the Labour Institutions Act, (No. 12 of 2007) to the extent that the reimbursement or payment does not relate to any matter specified in the Labour Relations Act, (No. 14 of 2007) respect of wages or other money or remuneration lost during the four months before the commencement of the bankruptcy or liquidation;
Also, in the event that one is retained by the company under administration, one becomes a preferential creditor which means that in the event the company is liquidated. The employees will be among the first creditors to be paid.
The employees also have a right to receive a salary and benefits. However, this right is dependent on the cashflow of the insolvent company.
According to section 593 of the Insolvency Act, administration automatically ends after 12 months. It is our hope that ARM Cement and its employees will emerge from this phase stronger and better able to contribute to our economy.