The World Bank and the International Finance Corporation, in assessing Kenya's investment climate, found the insolvency regime to be costly and subject to lengthy delays, and called for the reform and modernization of the existing legislation. According to information cited in this report, Kenya's insolvency regime suffers from infrastructural inadequacies relating to both the legal and institutional frameworks underpinning insolvency practice and property and creditor rights. A "Doing Business 2008" report released annually by the World Bank Group disclosed that it takes an average of 4.5 years to complete formal insolvency proceedings, at an average cost of 22% of the estate, and a return to creditors of, on average, thirty-one cents on the dollar.

General Overview

A 2004 Investment Climate Assessment of Kenya by the World Bank and the International Finance Corporation (WB/IFC) criticizes the lengthy and cumbersome business entry and registration procedures and notes that the conduct of insolvency procedures is also both long and costly. The report adds that the courts are not generally trusted and that contract enforcement and dispute resolution is therefore very difficult. The WB/IFC report cites information from an as yet unpublished report generated through the Financial Sector Assessment Program carried out by the World Bank and the International Monetary Fund (WB/IMF) in 2004, wherein a number of key weaknesses relevant to Kenya's insolvency regime were pointed out. These include infrastructural inadequacies relating to both the legal and institutional frameworks underpinning insolvency and property and creditor rights. According to the WB/IMF report, as cited in the WB/IFC assessment, "a lack of accurate and reliable information about the borrowers' ability to pay reduces competition, increases credit risk, and lending rates, and makes it difficult to reduce the dependence of banks' lending decisions on collateral" (p. 64). Also implicated are land-registration inefficiencies, corruption, and court delays. The WB/IFC report called on Kenya to reform and modernize the Companies Act to improve the insolvency regime.

A 2004 project appraisal document by the World Bank's Financial Sector Unit for the Africa Region discusses the rationale for a Financial and Legal Sector Technical Assistance Project in Kenya. In this report, numerous additional weaknesses in Kenya's legal and judicial framework are disclosed. Specifically, the document finds that the legislative regime is "fragmented, outmoded, and incomplete" in its treatment of property rights, insolvency, and creditor rights (p. 18). As a result, the authors of this report call for a comprehensive legal review in order to develop a more relevant legislative framework for Kenya's current economic realities. To that end, the World Bank began providing technical assistance in 2004, focusing on developing appropriate draft legislation and helping to create "a sustainable, participatory approach to law reform" (p. 39). Acts deemed to be in most pressing need of amendment include the Companies Act, the Insolvency Act, and the Bankruptcy Act.

The U.S. Department of Commerce reports in its 2006 "Doing Business in Kenya" guide that Kenya's judicial system derives from the British system, comprising magistrates' courts, high courts in major towns, and, over all, a Court of Appeal. Wage and labor disputes are heard in a separate industrial court, whose rulings are not subject to appeal. Commercial courts hear commercial disputes. The first Companies Act was passed in 1948, and Kenya's current Companies Act (1962) and other investment-related laws are based on that founding legislation.

In a 2007 "Doing Business" report by the World Bank, Kenya was ranked 76 out of 178 economies on the "closing a business" criterion, and 83 out of 178 in protecting investors. The report provides a breakdown of the costs, time required, and return to investors in the closing-a-business process in Kenya. The findings of the U.S. Department of Commerce's (U.S. DoC) 2006 "Doing Business in Kenya" guide bear out the World Bank's conclusions. The U.S. DoC asserts that, while property and creditor rights and contracts are enforceable, insolvency procedures are commonly subject to lengthy delays. The DoC report does add that creditor rights in Kenya are "comparable to those in other common law countries" (p. 56), and notes that the government recognizes binding arbitration at the international level in disputes involving foreign investors. In the World Bank's "Doing Business 2008: Kenya" report, published on the website in 2007, it is noted that the time required to close a business in Kenya averages 4.5 years and costs, on average, 22% of the estate, with a return to creditors of averaging $0.31. This performance compares to regional averages of 3.4 years, 20%, and $0.171; and OECD averages of 1.3 years, 7.5%, and $0.741.