The Court of Appeal has allowed a Dutch firm to pursue a debtor in Kenya, overturning an earlier decision by a lower court which blocked it from doing so, because it wasn’t locally registered under the Companies Act.
The appellate court reinstated a debt recovery suit by Stichting Rabobank Foundation against AVA Chem Limited-reinforcing a ruling by a High Court in 2025 that foreign companies incorporated abroad can sue and enforce contracts in Kenyan courts without local registration under the Companies Act.
At the heart of the dispute was whether a foreign company that is not registered in Kenya is barred from accessing Kenyan courts and whether extending a cross-border loan to a Kenyan company amounts to “carrying on business in Kenya” within the meaning of the Companies Act.
“Parliament prohibited an unregistered foreign company from carrying on business in Kenya. It did not prohibit such a company from instituting proceedings, maintaining an action, recovering a debt or enforcing a contract. Had Parliament intended to impose such a litigation disability, it could easily have said so expressly.”
The court emphasised that enforcing an existing legal right through litigation is not necessarily the same as carrying on business.
The dispute arose from a financial support arrangement entered into in October 2016. According to court records, Stichting Rabobank Foundation, a Dutch entity, agreed to provide financial support amounting to $180,116(Sh23.31million) to AVA Chem Limited.
Under the Financial Support Agreement, Christopher Irungu Mwangi, a director of AVA Chem Ltd, executed a personal guarantee through a deed of suretyship to secure the company’s obligations. The Foundation told the court that AVA Chem later defaulted on its repayment obligations.
Mr Mwangi allegedly acknowledged the company’s indebtedness and agreed to honour the guarantee should the company fail to pay.
When the debt remained outstanding, the Foundation filed a suit in the High Court in September 2022 seeking recovery of $230,868.51(Sh2.98billion), together with interest and costs.
Ava Chem filed a preliminary objection, arguing that the Foundation lacked the legal capacity to sue because it was a foreign company that had not registered under Part XXXVII of the Companies Act.
The High Court agreed with that argument, holding that the Foundation lacked locus standi because it had failed to register as required under Section 974 of the Companies Act. The court consequently struck out the suit without hearing its merits.
The Foundation moved to the Court of Appeal arguing that while Section 974 prohibits an unregistered foreign company from carrying on business in Kenya, the provision does not state that such a company loses its legal personality or is barred from filing or maintaining court proceedings.
It further argued that whether it was actually carrying on business in Kenya was a factual issue that could not properly be determined through a preliminary objection.
The respondents, however, maintained that the Foundation was carrying on business in Kenya through the financial arrangement and, having failed to register, lacked the legal capacity to institute proceedings.
The Court of Appeal said foreign companies may legitimately approach Kenyan courts for a variety of reasons, including protecting property, defending claims, enforcing arbitral awards, obtaining conservatory orders or recovering debts arising from international commercial transactions.