Debt Collection in Kenya: When the Courts are the Last Option
- Muhoro & Gitonga Associates
- Jan 26, 2024
- 7 min read
Updated: Oct 21
Table of Contents
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1. Introduction
Debt collection is a critical aspect of maintaining financial stability for businesses, lenders, and individuals. In Kenya, while many debts are settled amicably, there are cases where court intervention becomes the only option. The Kenyan legal framework offers structured mechanisms to pursue recovery, ensuring fairness and accountability.
This article provides a comprehensive guide to court-based debt collection in Kenya, highlighting the law, procedures, recent developments, and practical strategies to increase the likelihood of successful recovery.
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2. Understanding Debt Collection in Kenya
Debt collection refers to the process of pursuing payments owed by individuals or entities. While informal negotiations and debt collection agencies are common, legal enforcement through courts becomes necessary where a debtor refuses or fails to pay.
In Kenya, creditors must carefully balance speed, cost, and legal compliance when recovering debts. Courts provide remedies that, if enforced properly, can compel repayment or secure creditor interests against debtor assets.
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3. Legal Framework for Debt Collection
This Act governs contractual obligations, which form the basis for most debt recovery suits. A creditor must prove the existence of a valid contract, breach, and the amount owed.
This statute provides the procedural foundation for filing, serving, hearing, and enforcing civil claims, including debt recovery.
This Act provides procedures where a debtor cannot meet obligations. Creditors may petition for bankruptcy (individuals) or liquidation (companies), ensuring structured recovery.
Initially handling claims up to Kshs 1,000,000, Small Claims Courts have revolutionized debt recovery by offering fast-track, affordable justice. As of 2024, new gazetted courts across the country have expanded access, easing congestion in magistrates’ courts.
3.5 Other Relevant Laws
Companies Act, 2015Â (for company debt obligations)
Movable Property Security Rights Act, 2017 (allows creditors to secure interests in movable assets)
Banking Act and Microfinance Act (for regulated lenders)
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4. Steps to Debt Collection Through the Courts
4.1 Issuing a Demand Letter
This formal letter demands settlement of the debt within a specified period (usually 7–14 days). It is a mandatory precursor to filing suit.
4.2 Filing a Lawsuit
Court choice depends on claim size:
Small Claims Court:Â Up to Kshs 1,000,000
Magistrates’ Court: Between Kshs 1,000,001 – 19,999,999
High Court:Â Over Kshs 20,000,000
4.3 Serving the Defendant
Service ensures the debtor is formally notified. Where personal service is impossible, substituted service (e.g., newspaper advertisement under court order or email may apply).
4.4 Court Proceedings
Pleadings:Â The Plaintiff files a plaint, and the Defendant responds.
Pre-trial Conference:Â Settlement discussions and issue framing.
Trial:Â Examination of evidence and witness testimony.
4.5 Obtaining a Judgment
If the creditor proves the case, the court issues a binding judgment in their favor.
4.6 Enforcement of a Judgment
Non-compliance triggers enforcement mechanisms, including attachment of assets or garnishee orders.
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5. Enforcement Mechanisms Explained
5.1 Writs of Execution
Court orders authorizing attachment and sale of debtor’s property.
5.2 Garnishee Orders
Direct orders to third parties, typically banks, to remit funds directly to creditors.
5.3 Charging Orders
The court may charge land or other property to secure repayment.
5.4 Committal to Civil Jail
Though controversial, Kenyan courts may order civil jail for debtors who willfully refuse payment despite ability to pay.
5.5 Insolvency Proceedings
Creditors may initiate bankruptcy or winding-up petitions against insolvent debtors to recover through structured processes.
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6. Key Considerations in Debt Collection
6.1 Statute of Limitations
Debt claims must be filed within six (6) years.
6.2 Costs and Time
Litigation is often expensive and lengthy, making Alternative Dispute Resolution (ADR) attractive.
6.3 Debtor’s Financial Position
If the debtor is impecunious, recovery may be futile despite winning in court.
6.4 Legal Representation
Expert legal counsel increases the chances of procedural compliance and favorable outcomes.
6.5 Documentation
Well-kept contracts, invoices, and correspondence are vital in proving claims.
6.6 Compliance with Legal Procedures
Strict timelines must be adhered to, as non-compliance may lead to dismissal.
6.7 Alternative Dispute Resolution (ADR)
Mediation and arbitration offer faster, private, and cost-effective options before pursuing litigation.
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7. Recent Developments and Landmark Cases
7.1 Expansion of Small Claims Courts
By 2024, Small Claims Courts were operational in all 47 counties, greatly enhancing debt recovery efficiency.
7.2 Technology in Court Processes
The e-filing system and virtual hearings introduced during COVID-19 have become permanent fixtures, expediting case handling.
7.3 Recent Landmark Cases
Issues: The main issue was whether a Garnishee Order Nisi could be issued to attach funds held by the Co-operative Bank on behalf of Nairobi City County to satisfy a Kshs. 43,582,145.40 decree. Central to the dispute was the applicability and constitutionality of Section 21(4) of the Government Proceedings Act, which prohibits execution or attachment against government assets, including county governments.
Determination: The court found that Section 21(4) of the Government Proceedings Act remains valid law and no clear declaration of its unconstitutionality has been made by superior courts. Consequently, the court declined to grant the Garnishee Order Nisi to attach funds belonging to Nairobi City County. The court emphasized that executing against government assets would be unlawful and violate the rule of law.
Significance: This ruling reinforces the protection given to government assets under Kenyan law, limiting debt recovery through garnishee proceedings against government entities and county governments. It highlights the legal challenges in enforcing judgments against government bodies, underscoring the need to use alternative legal mechanisms for debt recovery from such debtors.
Issues: The main issue was whether the enforcement of a debt recovery decree and orders for attachment and sale of mortgaged property complied with procedural requirements under Kenyan law, including due process in serving notices and the validity of the mortgage and loan agreements.
Determination: The court held that the creditor did follow due process in obtaining and enforcing the decree. Service of summons and notices was sufficient, and the agreements supporting the debt recovery were valid and binding. Consequently, the order for attachment and sale of the mortgaged property was upheld.
Significance: This ruling affirms the enforceability of mortgage security for debt recovery in Kenya when proper legal procedure is followed. It underscores the critical importance of adhering to due process in serving documents and validating loan agreements, providing confidence to creditors in pursuing recovery through property attachment under Kenyan law.
Issues: The issue was whether the court should grant a Garnishee Order to attach funds held by several banks on behalf of Kenya Pipeline Company (KPC) to satisfy a Kshs. 485,000,000 judgment debt owed to Zakhem International Construction Ltd. KPC disputed owing the sum, claiming full settlement via payments to Kenya Revenue Authority (KRA) including taxes and penalties, and argued that the suit was withdrawn by consent.
Determination: The court found the Kshs. 485,000,000 debt remained due to Zakhem as per the original court orders. KPC's payments to KRA were in excess and not justified by the court rulings, and the consent agreement relied on by KPC was withdrawn and held to have no legal effect. Consequently, the court issued a Garnishee Order Absolute against the KPC account at Equity Bank, ordering payment to Zakhem, and discharged other banks from the proceedings.
Significance: This ruling reinforces creditors’ rights to enforce judgment debts via garnishee orders against debtor bank accounts in Kenya if payment disputes arise. It emphasizes that payments to tax authorities do not absolve debts unless fully compliant with court orders, and confirms that withdrawn or unenforceable consent agreements cannot prevent execution. The judgment provides a practical precedent for debt recovery enforcement involving multiple garnishees and government-related entities.
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8. Best Practices for Creditors in Kenya
Conduct due diligence before lending.
Maintain clear, written contracts with payment timelines.
Use demand letters to prompt settlement.
Explore ADR before court action.
Act within limitation periods.
Secure debts using collateral where possible.
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9. Conclusion
Debt collection in Kenya through the courts is a robust but complex process. With the right legal framework, professional representation, and enforcement mechanisms, creditors can safeguard their financial interests. Staying updated on legal reforms and recent case law significantly enhances recovery prospects.
10. Frequently Asked Questions (FAQs)
Q1: How long does debt collection through the courts in Kenya take?
It varies; Small Claims Court may conclude in 60 days, while High Court cases may last years.
Q2: Can I recover interest and legal costs?
Yes. Courts often award contractual interest and reasonable legal costs.
Q3: Can I sue after 6 years?
Generally, no. Claims beyond the statute of limitations are time-barred.
Q4: What happens if the debtor has no assets?
Enforcement becomes impractical. Insolvency may be the only remedy.
Q5: Is ADR binding?
Yes, mediated or arbitrated settlements are binding if recorded in court.
