Introduction
The High Court in Motorhub Limited (Under Administration) v KCB Bank Kenya Limited & another [2026] KEHC 2666 (KLR) sets the record straight for rights of the secured creditors and the need for necessity for short term corporate rescue. Although the court stayed the commencement of the administration process against Motorhub for 120 days, it acknowledged that the bank had a qualifying floating charge, the company was in default and the appointment of the administrator was procedural.
Background
The company moved to court to challenge the appointment of the administrator when it fell into arrears in a facility it had taken with the Bank of Ksh350,000. The bank in their legal right elected to appoint an administrator as one the rights of a secured creditor over the debenture it held over the company assets. The company contended that the bank had other options of recovering their debts save for the destructive option of administration, which it argued was not only excessive, punitive but also commercially destructive especially to its stature as a market leader.
On the other hand, the bank argued that the company had consistently defaulted and had even made two attempts of debt restructure. It stated that it had secured legal charges and debentures over the assets of the company. It submitted that it had issued a statutory of 90 days and did valuation as per the law and finally appointed the administrator on 28/10/2025.
The Holding of the Court
The court returned that the debt was acknowledged by the company although admittedly, was struggling financially to repay the said loan. It also acknowledged that the bank had followed the due process in appointment of the administrator as per clause 6 of the registered debenture as engendered under section 534 of the Insolvency Act. Section 534 allows a holder of floating in this case, the bank, to appoint an administrator in respect of a company’s property which the bank rightfully exercised its rights. The court also pointed out that the company did not raise any procedural flaws in the manner in which the bank had appointed the administrator. The company main contention was that the bank had elected to use a tool in its arsenal which was more drastic to the company while it had other less punitive options including the right to sell its properties as opposed to administration.
The court acknowledged that it had no powers to coerce parties to rewrite contracts. And as such, it was not in the business of the court to compel the bank to accept a proposal of a restructure by the borrower/Company. However, the court noted that the company had demonstrated efforts which had been put in place of ensuring that it raises funds from sale of its assets which if successful, would clear the outstanding arrears. On this basis alone, the Court was convinced to stay the commencement of the administration process conditionally for 120days to allow the company a window to pursue its repayment arrangements.
Our view
The case demonstrates the critical limited role the courts play in administration processes through court sanctioned rescue lenses vis a vis balancing the rights of the secured creditor’s remedies on one hand and on the other, the need for court’s intervention to ensure viable rescue objectives. The decision, is also a reminder to borrowers in a secured debt structures that the court has a limited role in diminishing the rights of secured creditors in recovery/enforcement of debentures and qualifying floating charges.
Conclusion
The take home lesson in the case is that companies/distressed borrowers may benefit out of short rescue windows sanctioned by the courts with proper timing and evidence but without dissipating the rights of secured creditors through administration proceedings.
