Court Delivers Key Ruling for Kenyans Borrowing From Foreign Lenders

The Court of Appeal has issued an important ruling affecting Kenyan businesses and individuals who borrow money from foreign lenders, making it clear that a loan does not automatically become unenforceable simply because the lender is not registered to operate in Kenya.

The court warned Kenyan borrowers that they cannot use the lack of registration by a foreign lender as an automatic reason to avoid repaying money that they legally owe.

The decision followed an appeal by a foreign lender whose case had earlier been dismissed by the High Court. The High Court had ruled that the lender could not pursue its claim in Kenya because it had not registered as a foreign company under Section 974 of the Companies Act.

The dispute involved a financial claim of USD 230,868.51, equivalent to approximately Ksh29.88 million. The money arose from financial support that had been provided to a Kenyan company, which the lender later sought to recover through the courts.

The High Court had taken the position that because the foreign lender had failed to register in Kenya, it could not use Kenyan courts to pursue the debt. As a result, the case was struck out before the lender could fully pursue its claim.

However, the Court of Appeal disagreed with that interpretation and overturned the High Court’s decision.

The appellate court made an important distinction between a foreign company being required by law to register before carrying on business in Kenya and that company’s ability to appear before Kenyan courts and seek legal remedies.

According to the Court of Appeal, failing to register in Kenya does not, by itself, remove a foreign company’s legal personality. It also does not automatically cancel a debt owed to that company or make every contract it has entered into invalid.

This means that Kenyan borrowers cannot simply argue that a foreign lender was not registered in the country and, on that basis alone, expect a court to cancel or ignore an outstanding loan obligation.

The court, however, was careful to point out that its decision should not be interpreted as giving foreign companies permission to operate freely in Kenya without following the country’s laws and regulations.

Foreign companies that actually conduct business in Kenya may still be required to comply with registration and other legal requirements. The ruling only means that the question of registration must be considered separately from the question of whether a lender has the legal capacity to bring a claim before a Kenyan court.

The Court of Appeal said that determining whether a foreign company is actually carrying on business in Kenya should depend on the facts and circumstances of each individual case.

Simply showing that a company is not registered in Kenya is therefore not enough to prove that it has been illegally conducting business in the country.

Among the issues that courts may consider are how frequently the company carries out transactions in Kenya, where its contracts are negotiated and executed, and whether the company has offices, employees, representatives or agents operating within the country.

The source of the company’s funds and the nature and continuity of its commercial activities may also be important when determining whether it is carrying on business in Kenya.

After considering the matter, the Court of Appeal reinstated the foreign lender’s case. This means the lender will now have an opportunity to pursue its claim and have the underlying debt, as well as any regulatory questions surrounding the transactions, determined on the basis of evidence presented before the court.

The ruling is significant for Kenyan businesses and individuals who enter into financing arrangements with banks, companies, investors or other lenders based outside the country.

It serves as a reminder that borrowing money from a foreign lender does not mean that the borrower can later avoid repayment simply because the lender does not have a Kenyan registration.

At the same time, the decision highlights the need for borrowers and lenders involved in cross-border financing to understand the legal requirements governing their agreements.

Such arrangements may involve issues relating to repayment schedules, interest, guarantees, security, default provisions, dispute resolution and the manner in which a lender can recover money if the borrower fails to honour the agreement.

Businesses entering into such agreements should therefore carefully examine the terms of their financing arrangements and ensure that the contracts comply with applicable Kenyan laws.

The Court of Appeal’s decision ultimately reinforces an important principle: the absence of registration by a foreign lender does not automatically erase a valid debt or prevent the lender from seeking justice through Kenyan courts.

Instead, courts will look at the circumstances of each case to determine whether the foreign company was required to register, whether it was actually carrying on business in Kenya and what legal consequences, if any, should follow from its failure to register.

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