The doctrine of subrogation is an important legal concept that exists in Kenya's legal system. Subrogation refers to the process by which one party, often an insurance company, assumes the rights and remedies of another party, typically an insured person, after compensating them for a loss. This doctrine allows the insurance company to step into the shoes of the insured and seek recovery from third parties who may be responsible for the loss.

In Kenya, subrogation is primarily governed by the Insurance Act, which sets out the rights and obligations of insurers and insured parties. According to the Act, when an insurer indemnifies an insured for a loss covered under the insurance policy, the insurer is entitled to be subrogated to all the rights and remedies of the insured against any third party in relation to that loss. This means that the insurer can pursue legal action against the party responsible for the loss in order to recover the amount paid out to the insured.

The doctrine of subrogation serves several purposes in Kenya. Firstly, it promotes the principle of indemnity, which is a fundamental concept in insurance law. By allowing the insurer to recover from the party at fault, subrogation helps prevent the insured from being unjustly enriched by receiving double compensation for the same loss.

Secondly, subrogation helps keep insurance premiums affordable by spreading the costs of losses across different parties. Without subrogation, insurers would have to bear the full burden of compensating the insured, leading to higher premiums for policyholders.

It is important to note that subrogation is subject to certain limitations and conditions in Kenya. For instance, the insurer's right to subrogation may be waived if it is expressly agreed upon in the insurance policy. Additionally, the insured must cooperate fully with the insurer in pursuing subrogation claims and must not take any actions that may prejudice the insurer's rights.

In conclusion, the doctrine of subrogation plays a significant role in Kenya's legal framework for insurance. It allows insurers to recover amounts paid to insured parties by stepping into their shoes and pursuing legal action against responsible third parties. This doctrine ensures that the principle of indemnity is upheld and helps maintain the affordability of insurance premiums for policyholders.

[*This article generally explains the law in force in Kenya and does not constitute an opinion or a legal opinion. To find out the rules specific to your situation, write to us on info@wjmaxwelll.co.ke or call/WhatsApp on 0733 610 961]

Instead of creating an entire legal department within your company or business, why not simply outsource that work to an external law firm?

Having an in-house counsel means that the lawyers are paid as employees of the company, they are on a payroll. Assume you have one lawyer, one secretary, and one intern, their total monthly salary is around Kshs. 300,000/=. Having two or three of them is even much expensive.

Hiring an external law firm allows you to negotiate and pay as little as Kshs. 100,000/= per month.

In-house and External Law Firms

In-house and external firms, literally do the same thing, they handle regulatory issues, drafting and reviewing contracts such as employee contracts, contracts with suppliers, contracts with customers, dealing with new employment standards and give the company advice on how to maintain compliance in various areas where the law is constantly changing, such as environmental, OSHA, sexual harassment, and discrimination.

We understand that budgets are tight for small and medium business owners, and having a lawyer on retainer to handle day-to-day legal issues that may arise can seem impossible. Large corporations can afford to hire an in-house lawyer and establish an entire in-house legal department with many lawyers. This is not an option for a small-business owner. However, you may be surprised to learn that there is a cost-effective way for a small business to obtain consistent, high-quality legal services to meet their day-to-day legal needs, and that is outsourcing for an external law firm. Some law firms here in Nairobi such as W.J. Maxwell & Associates Advocates, provide general counsel services at reasonable rates, and in some cases on a fixed-fee basis. 

Which Option is the Best for your Business?

Your best option depends on your business’s needs. If your business needs counsel with multiple areas of expertise such as micro-finance lending institutions, real estate developers, healthcare sector, tech companies, non-profit organizations, outside counsel is likely your best option. Also, if you run a startup or small business and don’t have complex business dealings requiring legal expertise, an outside law firm may be a good option.

In-house counsel can be a great asset because they can deal with any legal matter a business deals with. They are responsible for all the compliance and legal aspects of a business, however, not all companies have the resources to hire in-house counsel.

Benefits of Hiring a Law Firm Outside of Your Company Over an In-house Department

Hiring an external law firm instead of having an in-house counsel for a company in Kenya can offer several advantages. Here are some key benefits:

1. Expertise and Specialization

External law firms often have a team of lawyers with specialized knowledge in various areas of law. By engaging a law firm, you gain access to a broader range of legal expertise that may be necessary for different aspects of your business. This can be especially beneficial if your legal needs are diverse and require specialized knowledge in areas such as corporate law, employment law, conveyancing, intellectual property, or taxation.

2. Cost-Effectiveness

As mentioned earlier, hiring an external law firm on a project or case basis can be cost-effective compared to having a full-time in-house counsel on a monthly payroll. With an external law firm, you only pay for the services provided, and you can negotiate fees based on specific projects or tasks. This can be more budget-friendly, especially for smaller companies or those with fluctuating legal needs.

3. Flexibility and Scalability

Engaging an external law firm allows you to scale your legal services up or down based on your business needs. If you require legal assistance for a specific project, you can engage the law firm for that period and discontinue their services afterward. This flexibility is particularly valuable if your legal needs vary throughout the year or if you have intermittent requirements.

4. Access to a Network

Law firms often have extensive networks within the legal community, both locally and internationally. This network can provide valuable resources and connections, such as access to subject matter experts, industry-specific insights such as insider information and pointing you to the right direction with investors and general expansion to your business. Leveraging a law firm's network can contribute to more comprehensive legal support and success for your company.

5. Objective and Independent Advice

An external law firm can offer an objective perspective on legal matters and provide independent advice. As external advisors, they can assess your legal issues from an outsider's viewpoint, without being influenced by internal dynamics or conflicts of interest. This objectivity can contribute to more impartial legal guidance and help mitigate potential risks.

6. Current Legal Knowledge

Law firms prioritize staying up to date with the latest legal developments, regulations, and precedents. By engaging a reputable law firm, you benefit from their continuous legal education and awareness of recent legal changes. This ensures that your business is well-informed and compliant with applicable laws and regulations.

7. In-house Cannot Represent you In Court During Litigation

In-house cannot represent you in court during litigation. To represent a company in court during litigation in Kenya, it is necessary to engage the services of an external advocate who is duly licensed and registered with the LSK.

The restriction on in-house counsel representing their company in court is primarily based on the principle of independence and impartiality. Advocates are expected to act as officers of the court and owe a duty to the court, in addition to their duty to their clients. By not allowing in-house counsel to represent their company, the legal system aims to ensure the integrity of court proceedings and maintain an unbiased environment.

Furthermore, the restriction helps avoid conflicts of interest that may arise when in-house counsel simultaneously act as both legal advisors and advocates representing their employer in court. It safeguards the interests of the client and ensures that the litigation process remains fair and impartial.

Conclusion

It's important to note that the decision to hire an external law firm or an in-house counsel depends on your company's specific needs, budget, and long-term legal requirements. It may also be possible to strike a balance by having a combination of in-house counsel and external law firm support, depending on the complexity and volume of your legal matters.

W A N T  M O R E  I N F O R M A T I O N  O N  E X T E R N A L  L A W  F I R M  T O
P A R T N E R  W I T H  Y O U R  B U S I N E S S ?
T H E  A D V O C A T E S  A T  W . J . M A X W E L L  &  A S S O C I A T E S  A R E  H A P P Y  T O  H E L P .
C O N T A C T  U S  F O R  M O R E  I N F O R M A T I O N .

W . J . M A X W E L L & A S S O C I A T E S  A D V O C A T E S
info@wjmaxwell.co.ke | www.wjmaxwell.co.ke || 0733 61 09 61

The real reason why the Small Claims Court was created was to streamline business operations in Kenya for Businesses and Companies as opposed to settling disputes between individuals. It was meant to be an accessible forum for resolving financial disputes quickly and efficiently for businesses. This legal mechanism was envisioned as a commercial vehicle to aid businesses and companies in settling their disputes in a swift manner and allowing them to return to their primary operations without prolonged legal distractions. While the Small Claims Court is accessible to both individuals and businesses, it is apparent that the system is inherently more beneficial to businesses, particularly during the execution stage after judgment.

Commercial Vehicles for Business Efficiency

Small Claims Courts serve as crucial commercial vehicles for various business entities, including large corporations like banks and hospitals, as well as medium and small enterprises such as microfinance institutions, wholesalers, hardware stores, and even small retail shops and grocery stores. The design of these courts aims to facilitate quicker resolutions, helping businesses to minimize downtime and maintain operational continuity. However, despite the court’s accessibility to individuals, businesses are better equipped to utilize these courts effectively, especially during the post-judgment phase.

The Execution Stage: A Critical Challenge

Securing a favourable judgment in court is often only half the battle in litigation. The real challenge lies in executing that judgment to satisfy the decretal amount (amount awarded during judgment)—ensuring that the judgment debtor actually pays the sums awarded. This stage is fraught with difficulties and complexities, particularly when the debtor is an individual.

Why Businesses Have an Edge over Individuals

There are several reasons why it is generally easier for businesses to satisfy decretal amounts awarded in judgments compared to individuals:

1. Asset Visibility and Availability

   Businesses typically have tangible, traceable assets that are easier to identify and seize. For instance, a company might own inventory, equipment, real estate, or other valuable assets that can be attached and sold by the auctioneers to satisfy the judgment. In contrast, individuals may not possess significant assets, or their assets may be less visible and harder to locate.

2. Fixed Locations

   Businesses operate from known, fixed locations, making it easier for decree holders to locate and attach movable properties. This is in stark contrast to individuals who might not have a permanent address, complicating the process of locating and seizing their assets. You have to know where they stay before you can call in auctioneers on them. The costs associated with locating them can be more than what was awarded to you in court.

3. Public and Reliable Account Numbers

   Business bank accounts are often publicly known and can be garnished to satisfy a judgment. This transparency makes it easier to access funds directly from the business’s financial accounts. Individuals, however, may have multiple accounts, some of which may be hidden or difficult to trace, further complicating garnishment efforts.

The court can order attachment of the judgment debtor’s accounts, and the sums found in the account be deducted automatically to satisfy the decretal amount. The catch is that you must first identify the account numbers and plead directly with the court to give an order to garnish the account. You can’t simply state that the Judgment Debtor has an account with Equity Bank.  

4. Operational Budgets and Business Models

   Businesses operate on structured budgets and business models, which can facilitate the settlement of decretal amounts. A business might have contingency funds, insurance, or other financial mechanisms in place to handle such liabilities. On the other hand, individuals typically rely on salaries or wages, which may not be sufficient to cover large judgments, and they lack the financial flexibility that businesses enjoy. Yes, you can garnish an individual's salary to satisfy the decretal award, but the amount is limited to a lower percentage of their net income, of course, the court will factor in the basic needs of the family before deciding on a proper cut.

Other Challenges in Executing Judgments Against Individuals

Executing judgments against individuals presents numerous challenges that do not typically affect businesses:

- Asset Concealment.

Individuals can more easily hide or transfer assets to evade judgment enforcement. They might use tactics such as transferring ownership to family members or moving funds to untraceable accounts.

- Legal Protections:

 Individuals benefit from various legal protections and exemptions that shield their assets. For instance, a party can invoke homestead exemptions that protect a person's primary residence from being seized to satisfy a judgment. He might argue that the household items belong to his wife.

- Personal Bankruptcy:

Individuals can declare bankruptcy, which can discharge many types of judgments or significantly reduce the amount recoverable by decree holders. This process provides a legal shield against complete asset seizure.

Conclusion

The Small Claims Court system, while theoretically designed to serve both individuals and businesses, inherently favours the businesses in the execution phase. When businesses fail to satisfy a judgment, the decree holder can often rely on a clearer and more structured path to asset seizure and liquidation. In contrast, pursuing an individual debtor can result in prolonged legal battles with little assurance of asset recovery, leading to dormant judgments that remain unfulfilled.

Businesses possess more traceable assets, operate from fixed locations, and have public bank accounts and structured financial models, all of which facilitate easier and quicker judgment enforcement. Conversely, individuals present numerous challenges, from asset concealment and legal protections to the possibility of bankruptcy, making the execution of judgments against them significantly more complex and less assured.

Disclaimer: This is not legal advice and should not be relied upon as such. 

Contact us for further details.

W.J. Maxwell & Associates Advocates

email info@wjmaxwell.co.ke || or call/text/whatsapp 0733 61 09 61

Introduction

For years, shylocks and microfinance institutions (MFIs) in Kenya have played a crucial role in providing credit to individuals and businesses that lack access to mainstream financial institutions. However, their lending practices have often been constrained by cumbersome collateral requirements, legal uncertainties, and the risk of default.

The introduction of the Movable Property Security Rights Act, 2017 (MPSR Act) has significantly transformed the lending landscape, making it easier for small lenders to secure their interests in movable assets without the burden of court processes. This article explores how the MPSR framework benefits shylocks and MFIs, comparing it with the pre-existing regulations and highlighting its key advantages.

Understanding the Movable Property Security Rights Act, 2017

The MPSR Act was enacted to create a clear legal framework for using movable assets as collateral. Before its enactment, lenders faced challenges in securing their loans, especially in cases where borrowers defaulted. The traditional laws did not provide an efficient system for recognizing, registering, and enforcing security interests in movable property.

Under the MPSR framework, lenders can now register their security interests in a centralized registry, which provides legal recognition of their rights and simplifies the process of recovering debts in case of default.

How the MPSR Act Benefits Shylocks and Microfinance Institutions

1. Expanding the Scope of Acceptable Collateral

Traditionally, most lenders, including banks, required immovable property such as land or buildings as collateral. However, many small borrowers, particularly those seeking loans from shylocks and MFIs, do not own such assets.

The MPSR Act allows lenders to take security over a wide range of movable assets, including:

Motor vehicles

Stock-in-trade

Household goods

Livestock

Intellectual property (such as patents and copyrights)

Accounts receivable

This expansion of acceptable collateral enables shylocks and MFIs to lend more confidently, even to individuals who lack land titles or real estate holdings.

2. Centralized Online Registration System

The Movable Property Security Rights Registry provides an online system where lenders can register their security interests. This registration serves as public notice that a specific movable asset is encumbered, reducing the risk of fraud and double pledging of assets.

For shylocks and MFIs, this means they can easily verify whether an asset has been used as collateral for another loan before accepting it as security. This transparency was previously lacking, making it difficult for lenders to assess the risk of lending against movable property.

3. No Need to Go to Court for Debt Recovery

One of the most significant advantages of the MPSR framework is that it eliminates the need for expensive and time-consuming court processes when enforcing security interests.

Previously, if a borrower defaulted on a loan secured by movable property, the lender often had to seek court intervention to repossess or sell the asset. This was particularly difficult for shylocks and MFIs, who lacked the resources for prolonged legal battles.

Under the MPSR Act, lenders can enforce their security interests without going to court by:

Seizing and selling the collateral after notifying the borrower

Appointing a receiver to take control of the asset

Retaining the collateral in satisfaction of the debt

These provisions ensure that lenders can recover their money more efficiently, reducing losses associated with loan defaults.

4. Better Legal Protection for Lenders

Before the MPSR Act, shylocks and MFIs operated in a largely informal manner, exposing them to legal risks. Many borrowers would dispute loan agreements, claiming unfair lending terms or denying the existence of a loan altogether.

With the MPSR framework, a registered security interest provides legal proof of the lender’s claim over the collateral. This protects lenders from fraudulent borrowers who might attempt to dispose of the asset or claim that they never took the loan.

5. Higher Loan Recovery Rates

By reducing legal uncertainties and simplifying enforcement procedures, the MPSR Act increases the likelihood of recovering loans. When borrowers know that lenders can quickly seize and sell collateral without court intervention, they are more likely to honor their loan obligations.

Additionally, lenders can now conduct better risk assessments using the movable assets registry, ensuring that they only accept collateral that is free of existing encumbrances.

6. Lower Lending Costs and Improved Profitability

For many shylocks and MFIs, legal fees and court-related costs were a significant burden. The MPSR Act reduces these expenses, allowing lenders to operate more efficiently.

By streamlining the lending process, reducing default risks, and improving loan recovery rates, the new framework enhances profitability for lenders while ensuring fairer lending practices.

Comparison with Pre-existing Regulations

Before the enactment of the MPSR Act, lenders relied on outdated legal frameworks such as the Chattels Transfer Act and common law principles. These regulations had several limitations:

The MPSR Act has effectively modernized the process, making lending against movable assets safer, faster, and more cost-effective.

Conclusion

The Movable Property Security Rights Act, 2017 is a game-changer for shylocks and microfinance institutions in Kenya. By expanding the scope of acceptable collateral, introducing a centralized registration system, and eliminating the need for court intervention, the Act provides a more efficient and legally secure lending framework.

For lenders, this means higher loan recovery rates, reduced legal costs, and greater confidence in issuing credit to small borrowers. By leveraging the benefits of the MPSR Act, shylocks and MFIs can expand their businesses while mitigating risks, ultimately contributing to increased financial inclusion in Kenya.

Shylocks and microfinance institutions should actively embrace the MPSR system by registering their security interests and familiarizing themselves with the enforcement procedures. By doing so, they will not only protect their investments but also enhance their competitiveness in the evolving financial landscape.

Read more blog posts here! https://wjmaxwell.co.ke/blog/0/0

Disclaimer: This is not legal advice and should not be relied upon as such.

Contact us for further details.

Email info@wjmaxwell.co.ke || or call/text/WhatsApp 0733 61 09 61

W.J. Maxwell & Associates Advocates

Leaders in Law: Reshaping the Practice of Law