This archive report was first published on 16 October 2019.
On October 16, 2019, the Capital Markets Authority (CMA) and the Nairobi Securities Exchange (NSE) proposed the establishment of a Recovery Board to help financially distressed listed companies in Kenya.
Pre-insolvency proceedings, a concept introduced in the United Kingdom's Insolvency Act, aim to provide a 'light-touch' approach to insolvent companies, allowing them to come up with financial restructuring models before becoming insolvent.
The proposed Recovery Board seeks to protect investors by cautioning them when buying shares or trading in financially distressed companies. The rules dictate that listed companies must come up with a restructuring plan and implement it fully or risk being compulsorily de-listed from the bourse.
The Recovery Board offers a hybrid proceeding and formal rehabilitation proceeding that insolvent listed companies and their creditors can use to salvage their company. Immediate delisting of such companies can drag along with its myriad of issues and technicalities in the capital markets, making the placement on the Recovery Board a more viable option.
The long-term effect of the Recovery Board is to ensure that insolvent companies come up with a surgical debt restructuring plan and regularise their non-compliancy, especially corporate governance issues and corporate reporting.
