The Insolvency Act can be a viable way to manage business debt during this pandemic

Due to the financial constraints brought about by this pandemic, there is an increased debt risk during this time, as some people are unable to meet their financial obligations such as rent and other utilities.

And the impact is worse for entrepreneurs and businesses that are in financial distress. At the risk of accruing debt or interest rate, there is a way out if dialogue between you and your creditor or landlord hasn’t been fruitful.

One such way is filing for voluntary arrangements under the insolvency act 2015; a temporary reprieve that gives you time to restructure your finances, while protecting you from creditors, the landlord and other company stakeholders.

Since its enactment in September 2015, a number of companies have invoked it. Such as Nakumatt Holdings, Athi River Mining Cement Limited and Deacons East Africa PLC. 

Insolvency comes about when a business cannot raise enough funds to meet its financial obligations.The Act seeks to redeem insolvent companies through administration, as opposed to liquidation, which was often the creditor’s only recovery option.

Now if a company can be redeemed, they are allowed to continue operating with the hope that they will be able to meet their financial obligations to their creditors.

The advantages of this reprive is that it gives you some protection by the court:

1.     The company or court must appoint an administrator to oversee the company, this person should be a registered insolvency practitioner.

2.     Before any stern action can be taken against you such as being evicted or auctioned, the person would need to seek a court order.

3.     Through the administrator you can work out a payment plan for the creditors with a maximum period of three years.

4.     You are protected from lawsuits and from pressure to file involuntary bankruptcy by lenders.