Nairobi High Court has delivered a significant win for borrowers, ruling that a bank cannot proceed with auctioning a customer’s property once the arrears that triggered a loan default have been fully settled and the account restored to good standing.
The ruling, issued on May 28 at the Milimani Commercial Courts, stops a lender from auctioning two commercial properties used to secure an Sh80 million credit facility. Justice Moses Ado issued an injunction halting the planned sale pending the full hearing and determination of the case.
The facts of the dispute are straightforward but the legal question it raised cuts to the heart of lending practice in Kenya. The borrower had obtained the Sh80 million facility under a repayment plan of approximately 15 years. After experiencing financial difficulties, they defaulted for a single month. The bank responded by accelerating the entire loan facility, issuing statutory notices and moving to auction the two properties — all within less than a year of the loan’s start date.
The borrower went to court, arguing that by the time the auction was set to proceed, all the arrears had already been cleared and the account restored to normal standing. This shifted the legal question: not whether a default had occurred, but whether a bank can push ahead with a forced sale after the underlying breach has been remedied.
Justice Ado found in favour of the borrower. The court noted that the bank’s own records confirmed the arrears had been reduced to zero. Continuing with the auction after that point, the judge held, raised serious legal and equitable concerns.
“The forced, premature sale of an active asset when no debt is currently in arrears, in the view of this Court, constitutes an irremediable loss that cannot be cured by a simple retroactive arithmetic award of damages,” Justice Ado ruled.
The judge further emphasised that a bank’s statutory power of sale is not an automatic remedy — it must be exercised in accordance with the law, principles of fairness, and proportionality. Where a borrower has demonstrated both the willingness and the ability to regularise their obligations, lenders cannot simply proceed to auction as though nothing has changed.
The ruling is expected to have broad implications across commercial lending in Kenya. Developers, landlords, and investors who rely on long-term loan facilities and occasionally face short-term cash-flow difficulties could find greater protection under this precedent. Courts may now subject accelerated loan recalls and foreclosure proceedings to greater scrutiny, particularly in cases where borrowers act swiftly to clear defaults.
Legal analysts say the decision reinforces a principle already embedded in Kenyan law — that statutory remedies available to financial institutions remain subject to judicial oversight and must be exercised fairly. The judgment is likely to become a key reference point in future disputes involving distressed properties, income-generating assets, and large commercial loan facilities.
