Bill shielding loan guarantors from asset auction approved

A parliamentary committee has approved a bill that will compel creditors to seize assets of defaulting borrowers before touching a guarantor’s property.

The National Assembly’s Justice and Legal Affairs committee has proposed a minor amendment to restrict the application of the law to contracts signed after the date the Bill becomes law.

The committee cleared the Bill sponsored by Juja MP Francis Waititu that seeks to amend Section 3 of the Law of Contract Act that lays rules for signing of such agreements.

The Law of Contract (Amendment) Bill, 2019, proposes that in case of a default by the principal borrower, the creditor should first auction the assets of the former before raising the property of guarantors.

The committee made an about-turn on its rejection of a similar amendment that was contained in the Statute Law (Miscellaneous Amendment) Bill 2018, having taken into account submissions by the Attorney General, Kenya Bankers Association (KBA) and the Law Society of Kenya (LSK) whichhad all called for further consultations among stakeholders before passage of the proposal.

“Upon hearing from the legislative proposal’s sponsor (Mr Waititu), the committee was persuaded by the proposed amendment and recommends for the passage of the Bill subject to one minor amendment,” Mr William Cheptumo said.

He said the committee considered submissions from KBA, Kenya Private Sector Alliance (Kepsa) and Kipkenda and Company Advocates.

The Bill comes amid increased cases of lenders taking over guarantors’ property when borrowers default on repayment.

The proposal seeks to end the current case where creditors see guarantors as hanging fruits in their bid to collect bad loans.