Section 974 of the Companies Act, Cap 486 does not automatically bar a non-registered foreign company from suing in Kenya.

For offshore lenders, foreign investors and overseas parent companies with Kenyan exposure, what the Court of Appeal decided in July 2026 about standing to sue under section 974 of the Companies Act, Cap. 486.

Status. Court of Appeal judgment of 31 July 2026. It settles the standing question and reinstated the first instance suit for trial on the substantive issues (i.e., whether the underlying lending amounted to carrying on business in Kenya). No appeal against it is located as at 20 August 2026.

Background

A foreign bank entity (the Funder) advanced USD 180,116 to a Kenyan company (the Borrower) under a Financial Support Agreement dated 3 October 2016, with a personal guarantee from a director of the Borrower dated 9 October 2017 and a deed of surety dated 17 October 2018. The Borrower defaulted on repayment, provoking the Funder to sue for USD 230,868.51 being the outstanding loan amount with interest.

In response to the suit, the Borrower filed a preliminary objection on the grounds that the Funder was not a juristic person capable of instituting or maintaining the suit, since it was never registered in Kenya under Part XXXVII (Foreign Companies) of the Companies Act, Cap. 486, which requires registration of foreign companies doing business in Kenya. The Funder countered that it did not do business in Kenya and that the Financial Support Agreement was signed outside Kenya.

In its ruling of 25 July 2024 (the Ruling), the High Court agreed with the Borrower that the Funder's failure to register under section 974 of the Companies Act denied the Funder the capacity to sue, and dismissed the Funder's suit. The Funder appealed to set aside the Ruling. On 31 July 2026, the Court of Appeal set the Ruling aside. The position on appeal, Stichting Rabobank Foundation v Ava Chem Limited & another (Civil Appeal E090 of 2025) [2026] KECA 1550 (KLR), Court of Appeal at Nairobi (Korir, Ndolo and Hassan, JJA), 31 July 2026.

What the Court decided

The Court of Appeal allowed the appeal unanimously, holding that:

"Section 974 does not, merely by reason of non-registration, expressly or by necessary implication extinguish the juridical personality of a foreign company or deprive it of standing to institute proceedings in Kenya."

 Accordingly, the Court found that the High Court had erred in treating non-registration as automatically dispositive of locus standi.

The Reasoning

Section 974(1), the Court reasoned, simply prohibits a foreign company from carrying on business in Kenya without registration: it does not provide that an unregistered foreign company ceases to be a juristic person, that its contracts are void, that its debts are extinguished, that it cannot be sued, or that it is barred from suing. Such consequences could not be presumed merely because registration is mandatory.

The Court also acknowledged that while section 974(3) provides a criminal penalty for contravention of the registration requirement, there was no basis to read in an additional civil disability of a fundamentally different character, absent express or necessarily implied statutory intent. Section 974 prohibits an unregistered foreign company from "carrying on business in Kenya"; it does not prohibit such a company from enforcing a contract or instituting proceedings.

The Court declined to determine whether the Funder was "carrying on business in Kenya" by advancing a loan to a Kenyan company, holding that the question required examination of facts and could not be determined on an appeal from a preliminary objection. The statutory examples of carrying on business, the Court noted, (offering debentures, or acting as guarantor for debentures) are inclusive and not exhaustive: whether an activity amounts to carrying on business may depend on factors such as the nature of the entity's ordinary business; the number and frequency of transactions; the place where contracts are negotiated and concluded; the place of performance; the existence of an office, branch, employees or agents; the duration and continuity of the activities; the location from which funds or services are supplied; the degree of commercial presence maintained in Kenya; and the particular statutory purpose for which the expression is being interpreted — with no single factor being necessarily decisive.

What this means in practice

For anyone structuring cross-border lending or financial support into Kenya:

The registration obligation is untouched. Nothing in the judgment relieves a foreign company of the requirement in section 974(1), and the criminal penalty in section 974(3) sits exactly where it did. What has been clarified is that there is no implied civil disability preventing enforcement of rights, including by instituting proceedings. The question of what constitutes "carrying on business in Kenya" remains open. The Court observed that activities other than those given in the statute (offering debentures in Kenya and acting as guarantor for debentures in Kenya) may constitute carrying on business in Kenya, depending on circumstances such as the nature, extent, continuity and territorial connection of the relevant activities.

Key Takeaway

For foreign lenders or investors operating in Kenya, domestic registration remains a live compliance question in its own right. Section 974(1) still prohibits carrying on business without registration, and section 974(3) still attaches a criminal penalty for failing to do so. If your business lends into Kenya, invests through an offshore vehicle, or holds guarantees given by Kenyan directors, the useful next step is a short, focused review of the section 974 position across that documentation, which entities are registered, which are not, what activity each actually carries on in Kenya, and where any exposure lies.