A commentary on Stichting Rabo Bank Foundation v Ava Chem Limited [2024] and Root Capital Inc. v Tekangu Farmers Co-operative [2016]
Introduction – Let’s Put This Into Perspective
Consider this scenario:
A Dutch impact investor signs a facility agreement with a Kenyan agribusiness. The loan is disbursed, the repayment schedule is agreed, and security is issued — including personal guarantees. A few months in, the borrower defaults. The lender issues a demand notice, tries to negotiate, and when that fails, they proceed to file a suit in the High Court of Kenya.
Sounds straightforward, right?
Yet, the court strikes out the case — not because the borrower didn’t owe the money, but because the lender was not registered as a foreign company in Kenya under Section 974 of the Companies Act.
In essence, the court says:
“Since you’re not registered, you’re deemed not to have the legal capacity to enforce this loan in Kenya. You may have lent the money, but in our eyes, you’re not legally present here.”
Cases That Clarified (Or Complicated?) The Law
- Stichting Rabo Bank Foundation v Ava Chem Limited [2024]
Rabo Bank, incorporated in the Netherlands, gave a loan to a Kenyan company. The borrower defaulted, and Rabo sued. But the court threw it out — not because the borrower didn’t owe money, but because Rabo wasn’t registered as a foreign company in Kenya. - Root Capital Inc. v Tekangu Farmers Co-operative [2016]
Root Capital, from the U.S., had security over Kenyan assets. When the borrower defaulted, they tried to enforce. Again, the case was dismissed — same reason.
Is This The Position In Law?
Section 974(1) of the Companies Act states:
“A foreign company shall not carry on business in Kenya unless—
(a) it is registered under this Part; or
(b) it has applied to be so registered, and the application has not been dealt with within the prescribed period.”
Section 2 defines a “foreign company” as one incorporated outside Kenya.
Section 974(2) further elaborates on what constitutes “carrying on business” — such as offering debentures or establishing a place of business in Kenya.
But the High Court interpreted “carrying on business” more broadly, treating the act of lending money to a Kenyan borrower — even from abroad — as falling within this scope. The result? If you’re a foreign lender without registration, you cannot sue in Kenya, no matter how legitimate your claim is.
So What Does This Actually Mean To Foreign Companies?
- If you’re a foreign lender, and you extend credit to a Kenyan borrower, you must register under the Companies Act.
- Failing to do so could mean you can’t enforce your rights in court, even if your loan is secured or undisputed.
- This applies even if the lender doesn’t have a branch, staff, or operations in Kenya.
This decision creates a new compliance checkpoint for any offshore lender engaging with Kenyan counterparties.
From a risk and enforceability standpoint, registration is now the difference between enforceable rights and a courtroom lockout.
A Cautionary Reflection (A Dissenting View)
While the legal rationale relies heavily on Section 974, there is room to reflect on whether the interpretation was commercially sound.
Lending money to a Kenyan entity — especially on a one-off or non-recurring basis — is arguably not the same as actively “carrying on business” within Kenya. The statute itself gives specific examples, such as offering debentures, which suggests a more sustained or localized business presence.
Treating every foreign loan as “carrying on business” may unintentionally:
- Erode investor confidence,
- Deter cross-border capital,
- And contradict broader economic policies that encourage external financing and fintech-driven lending.
We must ask ourselves: Is this a case of the law protecting our jurisdiction, or strangling legitimate investment with technicalities?