Introduction
Unpaid commercial debts are among the most common legal challenges facing businesses in Kenya. Whether the debtor is a corporate entity, a sole trader or an individual, the process of recovery — from initial demand through to enforcement of a court judgment — requires a clear legal strategy. This guide sets out the principal options available to creditors under Kenyan law.
Step 1: Before Litigation — The Formal Demand Letter
The first step in any debt recovery is a formal demand letter from advocates. A well-drafted demand letter:
- Clearly identifies the creditor and debtor.
- States the exact amount owed, the legal basis of the claim (contract, invoice, agreement) and the date it fell due.
- Demands payment within a specified period (typically 14–21 days).
- Warns of legal proceedings without further notice upon expiry of the deadline.
A letter from advocates signals seriousness. Many debtors settle at this stage to avoid litigation costs and reputational risk. Where the debtor is a regulated entity (bank, insurance company, professional firm), a formal demand carries particular weight.
Step 2: Choosing the Right Court
Magistrate's Court (Senior Resident Magistrate): Handles debt claims up to KES 20 million. Faster and less expensive than the High Court. Suitable for standard commercial invoice recovery.
High Court (Commercial Division): For claims exceeding KES 20 million. More formal procedure but appropriate for complex or high-value matters.
Small Claims Court: For claims up to KES 1 million (as at 2024). Designed for speed — hearings typically within 60 days of filing.
The choice of court affects speed, cost and procedural requirements. We advise on the optimal forum for each matter before filing.
Step 3: Summary Judgment — The Fast Track Option
Where a debt is liquidated (a specific, ascertainable sum) and the debtor has no genuine defence, the creditor can apply for summary judgment under Order 17 of the Civil Procedure Rules. This avoids a full trial and can result in judgment within weeks of filing. Key requirements:
- The claim must be for a specific sum of money.
- The creditor's advocate files a supporting affidavit setting out the facts and exhibiting the relevant documents (contract, invoices, demand letter, delivery notes).
- The debtor must show cause why judgment should not be entered — if they cannot demonstrate a genuine triable defence, judgment is entered summarily.
Summary judgment is the most powerful and time-efficient tool available to creditors with solid documentation.
Step 4: Statutory Demand — For Corporate Debtors
Where the debtor is a company and the debt exceeds the prescribed threshold (currently KES 100,000), a statutory demand can be served under the Insolvency Act 2015. If the company fails to:
- Pay the debt in full,
- Secure the debt to the creditor's satisfaction, or
- Compound the debt to the creditor's reasonable satisfaction,
within 21 days of service, this constitutes evidence of the company's inability to pay its debts — creating a basis for a winding-up petition.
A statutory demand is a powerful tool that focuses the debtor's mind. Most solvent companies will pay or engage constructively to avoid winding-up proceedings, which carry significant reputational and operational consequences.
Step 5: Enforcement of Judgments
Obtaining judgment is only half the battle. If the debtor does not voluntarily pay, the judgment must be enforced through one or more of the following mechanisms:
Garnishee Order: Where a third party (typically a bank) owes money to the judgment debtor, the court can order that third party to pay the creditor directly. A bank garnishee order (attaching bank accounts) is one of the fastest and most effective enforcement tools.
Attachment and Sale: The court issues a warrant directing a court bailiff to attach (seize) the debtor's movable property — vehicles, equipment, stock — and sell it at public auction, with proceeds applied to the debt.
Charging Order: For real property, a charging order creates a charge over the debtor's land in favour of the creditor, preventing disposal until the debt is paid. The creditor can subsequently apply for an order for sale.
Appointment of Receiver: In appropriate cases, the court appoints a receiver to collect income (rents, profits, receivables) from the debtor's assets on behalf of the creditor.
Committal for Contempt: Where the debtor has personally been ordered to pay by a specific date and has wilfully failed to do so, committal proceedings may be available in limited circumstances.
Step 6: Cross-Border Debt Recovery
Where the debtor is located in a foreign jurisdiction, the options depend on whether Kenya has a treaty or reciprocal enforcement arrangement with that jurisdiction. Kenyan judgments can be registered and enforced in jurisdictions with which Kenya has reciprocal enforcement arrangements. For jurisdictions without such arrangements, fresh proceedings may be required. We advise on cross-border recovery strategy case by case.
Limitation Periods
Act promptly. Under the Limitation of Actions Act (Cap 22), most contract-based claims must be filed within 6 years of the date of breach. A claim filed outside this period will be dismissed at the threshold regardless of its merits. If you are aware of an unpaid debt, seek legal advice immediately to ensure your limitation period is preserved.
Documentation Best Practices
Strong debt recovery starts with good documentation. Maintain:
- Signed contracts or purchase orders.
- Delivery notes or proof of service delivery.
- Invoices with clear payment terms.
- Written acknowledgements of debt or payment plans.
- All correspondence with the debtor.
A creditor with complete documentation has a significantly stronger recovery position than one relying on informal or verbal agreements.
Conclusion
Debt recovery in Kenya is a structured, multi-stage process. Early legal intervention — starting with a formal demand — almost always produces the best outcome. WTT Lichuma Advocates LLP handles commercial debt recovery across all sectors. Contact us for a direct assessment of your recovery options.