MasiboLaw LLP

By Meshack Masibo & Sarah Mwende

On 31 July 2026, the Court of Appeal of Kenya delivered an important decision in Stichting Rabobank Foundation v Ava Chem Limited & Christopher Irungu Mwangi. The Court overturned a High Court decision that had struck out a debt-recovery claim brought by a Dutch lender because the lender was not registered as a foreign company in Kenya.

The Court of Appeal confirmed that a foreign company does not automatically lose its right to sue in Kenya simply because it is not registered locally.

What happened in the Rabobank case?

In October 2016, Stichting Rabobank Foundation, a Netherlands-incorporated entity, advanced USD 180,116 to Ava Chem Limited under a financial support agreement, backed by a personal guarantee from Ava Chem’s director. When Ava Chem defaulted, the Foundation sued in the High Court to recover USD 230,868.51 plus interest and costs.

Ava Chem didn’t dispute owing the money. Instead, it raised a preliminary objection: the Foundation was an unregistered foreign company under section 974 of the Companies Act, 2015, which requires foreign companies “carrying on business in Kenya” to register locally.

On that basis, Ava Chem argued, the Foundation had no legal capacity to sue. The High Court agreed and struck out the suit in July 2024.

What the Court of Appeal Decided

Rabobank appealed and the Court of Appeal reversed that outcome, drawing a sharp line between three things the High Court had treated as one:

• Legal personality — whether an entity exists in law and can hold rights and obligations. This comes from the law of the company’s home country and isn’t erased by failing to register in Kenya.
• Capacity to sue — whether that entity can bring a case before a Kenyan court. Section 974 doesn’t say an unregistered company loses this.
• Regulatory compliance — whether the company has met its registration obligations. Breach carries its own penalties under the Act, but not the additional penalty of being shut out of court.

As the Court put it, “A foreign corporation does not become a non-entity at Kenya’s border.”

Was the Foundation “Carrying On Business” in Kenya?

Ava Chem’s fallback argument — that lending money to a Kenyan company is itself “carrying on business in Kenya” — didn’t succeed either. The Court held this is a fact-specific question, not something that follows automatically from a single cross-border transaction. Relevant factors include:

• the nature and frequency of the company’s dealings in Kenya
• where contracts are negotiated, signed, and performed
• whether the company has an office, branch, employees, or agents here
• how long and how continuously it has been active in the market

The Court also noted that a loan isn’t automatically the same as a debenture — one of the activities section 974 expressly flags as “carrying on business.” Because the answer turns on evidence, not assumption, it couldn’t properly be resolved through a preliminary objection, which only tests pure points of law.

Why This Matters for Cross-Border Lenders and Investors

• A registration gap is no longer a silver bullet defence. A Kenyan borrower can’t defeat a valid claim simply by pointing out the foreign lender isn’t locally registered.
• Registration is still required where you’re genuinely doing business here. This ruling doesn’t relax section 974 — a real, ongoing commercial presence in Kenya still needs to be registered.
• Documentation matters more, not less. Where a transaction was negotiated, signed, and funded should be reflected accurately, since these facts are exactly what a “carrying on business” inquiry will turn on.

FAQ

Does an unregistered foreign company lose its right to sue in Kenya? No. The Court of Appeal held that non-registration under section 974 is a regulatory issue, not a bar to legal capacity or court access.

Does making a single cross-border loan to a Kenyan company count as “carrying on business” in Kenya? Not automatically. It depends on facts like where the deal was negotiated and performed, and whether the lender has an ongoing presence in Kenya.

Can a Kenyan company still use “you’re not registered” as a defence to a debt claim? Not on its own. It can still be relevant evidence, but it no longer defeats the case outright at a preliminary stage.

How We Can Help

At MasiboLaw LLP, we advise lenders, investors, and businesses on cross-border transactions, foreign company registration and compliance, and contractual enforcement in Kenya. If you’re structuring a deal with a Kenyan counterparty or facing a standing challenge in a Kenyan court, get in touch at info@masibolaw.co.ke.