A firm is placed under administration to give it a lifeline to recover by keeping away creditors from attaching its property.

In August 2018, ARM Cement was placed under administration with PwCs Muniu Thoiti and George Weru being appointed as the joint administration managers. As the two embark on the arduous task of turning the company around, the importance of forming a creditors committee should not be lost to them.

The creation of the committee is provided for in the Insolvency Act, 2016 which states that a creditors committee can be appointed by a general meeting of the company’s creditors. This is to ensure that the interests of unsecured creditors are safeguarded during the period in which the company is under administration.

The number of members should be between three and five with a preference for an odd figure for voting purposes. The creditors’ committee is mandated by the new act of parliament to summon the administrators to appear before it on notice. The committee also has the power to approve the proposed course of action presented by the administration managers as well as monitor their progress. It can also make an application for the removal of an administrator if need be.

The reason why the new Insolvency Act, 2016 was introduced was to provide companies facing financial challenges a chance to revive themselves and get back into business unlike the previous system which often led to the liquidation and closure of such companies. It is through the introduction of bodies like the creditors’ committee that the act aims to achieve this.

Though under administration, ARM Cement was already making significant steps towards recovery. Its outstanding debt as at December 2017 was Ksh 14.4 billion, a 43.5% reduction from the Ksh 25.5 billion it owed as at December 2016. This means that with the right remedial steps, the administration managers have a viable chance of guiding the company back into profit making territory.

As they come up with their recovery plan, Mr. Muniu Thoiti and Mr. George Weru should ensure that their first act is to set up the creditors committee. This will ensure that decision making during the administration period is smooth and that all stakeholders are kept abreast of the measures being taken by the administrators to revive the company.