Bill protecting guarantors assets from auction to return

The National Assembly will reintroduce a Bill that seeks to compel creditors to seize assets of defaulting borrowers before touching a guarantor’s property in honour of Juja MP Francis Waititu who died on Monday night.

Former Leader of Majority Aden Duale said he will reintroduce the Laws of Contract (Amendment) Bill, 2019, that President Uhuru Kenyatta rejected on grounds it would prejudice the financial sector if enacted into law in its current form.

Through the Bill, Waititu wanted banks to first deal with the assets of the principal borrower before seizing assets of the guarantor.

“Because of some strange reasons and in line with Article 115 of the Constitution, the President refused to assent to the Bill.

“Now that six months have lapsed since the Bill was rejected, I will be ready to bring back that Bill for us to consider the reservation of the President and accommodate what the President wanted. This will be in honour of our late colleague,” Mr Duale said.

Mr Duale said he moved the Bill on behalf of Mr Waititu through the Second and Third Readings when the MP fell ill and was admitted in India for cancer treatment.

“I had a very special relationship with Honourable Wakape, as he was commonly known. I moved the Laws of Contract (Amendment) Bi when Mr Waititu was unable to move it at the Second Reading after he delegated the responsibility to me. It is the only private member’s Bill I took through all stages as Leader of Majority,” Mr Duale said.

MPs Gitonga Murugara (Tharaka) and Jude Njomo (Kiambu) supported Mr Duale and asked MPs to breathe a new life into the Bill in honour of Mr Waititu.

It will require a two-thirds majority or 233 Members of Parliament to veto Mr Kenyatta’s rejection of the Bill.

The President last February refused to assent to the Bill, arguing that some sections are likely to affect creditors by making debt recovery longer and more expensive, as well as by affording guarantors the opportunity to conceal or dispose of assets to avoid the realisation of security when debts are unpaid.

Mr Kenyatta rejected clause 2(1) of the Bill that stipulates that before a suit is brought against a defendant, the plaintiff shall first realise the assets of the principal.

“The proposed new provisions to section 3 of the Law of Contract Act will negate a long-standing principle of contract law that is relied on by lenders, borrowers, guarantors, investors and other stakeholders in the Kenyan economy, especially in the capital markets,” Mr Kenyatta said in the memo.

The Bill wanted to amend Section 3 of the Law of Contract Act that lays rules for signing of such agreements.

The Bill 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.