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Debt Finance & Insolvency

Legal Procedures Governing the Use of Debt Collection Agencies in Kenya

By 22 Jul 2021Sep 6th, 2021No Comments

COMMERCIAL LAW

Legal Procedures Governing the Use of Debt Collection Agencies in Kenya

A secured creditor may legally pursue the avenue of using a debt collection agency without first going to court.

All other creditors may first obtain a court order before seeking to attach a debtor’s assets in execution of a court order in favour of the creditor; therefore, these types of creditors (unsecured) require a court order before they can validly instruct a debt collection agency to recover a judgement debt.

Use an Auctioneer to Enforce Security Rights under the Movable Property Security Rights Act

Kenya has provision for debt collection agencies whose operations are governed by the Auctioneer’s Act.

A secured creditor may appoint a debt collector (licensed auctioneer) after exhausting the normal debt collection procedures through attempts at amicable agreement on payment of the debt; i.e., where the secured creditor and the debtor have not come to an agreement on repayment of the outstanding debt after issuance of a statutory notice of default as required under the law.

The first debt recovery remedy that a secured creditor may pursue upon failure of the debtor to cooperate in amicable settlement, is seizure and sale of the security property by a licensed auctioneer to recover outstanding debt.

It is important that only a licensed auctioneer be used, otherwise a debtor shall have valid grounds to pursue a court action against the secured creditor, for wrongful disposal of the security property, as the conduct of seizure and sale of security assets falls under auctioneers’ business as stipulated under the Auctioneers Act of Kenya and it is unlawful for a person other than a licensed auctioneer to engage in auctioneering business.

The secured creditor can hire a licensed auctioneer who practices in his own name or in a firm of auctioneers and provides services to secured creditors. Once the secured creditor has settled on hiring a particular auctioneer, the secured creditor shall issue a Letter of Instruction to the auctioneer in the statutory form under the Auctioneers Act.

The secured creditor may sell or lease the security property e.g., a vehicle, to recover the loan; and the same procedure applies if the secured creditor decides to have an auctioneer seize the security property and lease it out to recover the debt or to seize the security property and sell it.

Conduct of the Sale by the Secured Creditor and the Auctioneer

The auctioneer may make attempts to recover the debt through negotiations before resorting to seizing and selling the security property in question. The proceeds realized from the sale of the security shall liquidate the outstanding loan principal plus interest and any incidental costs.

Once the collateral is seized after default, the auctioneer and the secured creditor will work together to value the security property while keeping in mind that the debtor has the right to apply to court for an independent valuer to be appointed to value the security property where the debtor disagrees with the sale value proposed by the auctioneer/secured creditor.

Some few days before the sale of the security property, the creditor shall send to the debtor, a notice of the secured creditor’s intention to dispose of the security property and the notice needs to stipulate the following information:

  1. identify the grantor of the security (who is often the debtor) and the secured creditor;
  2. contain a description of the collateral;
  3. provide a statement of the amount required to satisfy the secured obligation including interest and a reasonable estimate of the cost of enforcement;
  4. identify the manner of the intended disposition; and
  5. provide a statement of the date after which the collateral will be sold or otherwise disposed of, leased or licensed, or the time and place of a public disposition.

Where there is any other secured creditor with respect to the collateral, this notice shall also be sent to such a creditor some days before it is sent to the debtor.

The sale shall be by public auction and shall be advertised. After settling the outstanding debt and the auctioneer’s charges, the balance of the sale proceeds shall be given to the debtor less any charges levied.

Where the sale proceeds of the security property do not fully repay the loan outstanding, the secured creditor may proceed to sue the debtor in court in a debt recovery claim using a law office versed in loan finance e.g., a car loan finance lawyer who shall file suit for recovery of debt after preparing the plaint and accompanying written statement of witnesses.

The provision of general information herein does not constitute an advocate-client relationship with any reader. All information, content, and material in this article are for general informational purposes only. Readers of this article should get in touch with us/a qualified advocate to obtain legal advice with respect to any particular legal matter.

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