What Happens to an Off-Plan Buyer When the Developer Goes Insolvent?
When Banda Homes went into liquidation in March 2025, buyers who had paid deposits across several developments faced a question nobody had answered clearly when they signed their sale agreements: what does "insolvent developer" mean for me, practically, in Kenya law?
The answer is not comforting. But it is worth understanding before you pay, not after.
You Become an Unsecured Creditor
When a Kenya company enters liquidation, its debts are ranked. The Insolvency Act 2015 sets out the order of priority.
Secured creditors come first. These are parties who hold a registered charge over an asset of the company. In a property development, that typically means the bank that provided construction finance and holds a charge over the development land and any buildings on it. Their claim is satisfied from the proceeds of selling those secured assets before anyone else sees a shilling.
Preferential creditors come second. Under the Insolvency Act 2015, this category includes certain employee wages arrears, statutory contributions, and tax claims from the Kenya Revenue Authority up to a specific cap.
Unsecured creditors come last. As an off-plan buyer who paid a deposit, you are an unsecured creditor. You paid money against a contractual promise to deliver a unit. You hold no registered charge over the land. You hold no security over any specific asset. You are in the same queue as suppliers, trade creditors, and other buyers who paid deposits.
What "Unsecured Creditor" Means in Practice
Recovery for unsecured creditors in Kenya corporate insolvency is, bluntly, poor.
How much you recover depends on what is left after the secured creditors and preferential creditors have been paid. In a property development insolvency, the construction land and any partially completed buildings are the primary assets. If the bank's charge consumes those assets, unsecured creditors share whatever remains in the general estate.
In comparable insolvencies, unsecured creditor recoveries of 10 to 30 cents on the shilling are within the documented range. Recoveries of zero are also possible if the secured claims exhaust the estate. The time to distribution, even in cases where there is something to distribute, typically runs to several years from the date of liquidation.
This is not a prediction about any specific case. It is a description of how the legal framework operates.
The Exception: If You Have a Charge on the Title
The analysis above applies to buyers who hold only a contractual right under a sale agreement.
If your advocate registered a caveat or charge protecting your equitable interest as a purchaser, you have a registered interest that appears on the title. A caveat does not provide the same protection as a charge, but it puts the world on notice of your claim.
A properly registered charge securing your purchase price would make you a secured creditor for that amount. Most off-plan sale agreements in Kenya do not include this, and most buyers do not ask for it.
Before paying a significant deposit, ask your advocate whether a caveat or charge can be registered against the development parcel.
The Liquidation Process
Once a Kenya court makes a winding-up order, the company is placed into liquidation and a liquidator is appointed.
The liquidator's job is to realise the assets of the company, pay the claims in the order of priority set by the Insolvency Act, and distribute any surplus.
As a creditor, you need to file a Proof of Debt with the liquidator. This is a formal document setting out the amount you are owed and the basis of the claim. You should attach your sale agreement, all payment receipts, and any other documentation of the transaction.
Missing the deadline for Proof of Debt filing can result in your claim being excluded from the distribution. Watch for the liquidator's advertisements in the Gazette and the newspapers. They are required to publish notices to creditors.
What You Can Prove and What You Cannot
The strength of your claim in liquidation depends on documentation.
What strengthens your claim: a signed sale agreement with the company (not with an individual), payment receipts to the company's bank account in the company name, written communications with the company confirming the development details.
What weakens your claim: payments made to an individual M-Pesa number rather than a corporate account, no written sale agreement, verbal-only agreements, payments made in cash without receipts.
This is why documentation discipline matters before a project is in trouble, not after. If your payments are documented against the company, your Proof of Debt claim is straightforward. If your payments went to an individual whose connection to the company is informal, your claim is complicated.
Legal Action: What Is Actually Possible
If the company is in liquidation, there is no point suing the company. File your Proof of Debt and engage the process.
You may have a claim against individual directors if you can show fraudulent trading or wrongful trading under the Insolvency Act 2015 and Companies Act 2015. This requires evidence of director conduct, not just that the company failed.
Criminal complaints to the DCI are possible if there is evidence of fraud. Criminal proceedings are slow and do not directly recover your money, but they create a record.
Consumer protection complaints to the Competition Authority of Kenya (CAK) are available for certain unfair trade practices. The CAK has been increasingly active in housing sector complaints.
What to Do If a Project You Have Paid Into Is in Trouble
Do not wait for the liquidation order to act.
If you see signs that a developer is in financial difficulty, you have more options while the company is still trading than after a winding-up order.
Write a formal demand letter through an advocate, citing the sale agreement and demanding either performance by a specific date or full refund. Send it by registered mail and keep the receipt.
If the agreement allows it, give written notice of rescission and demand your deposit back within the contractual refund period. Get legal advice on whether your grounds for rescission are solid before you send the notice.
Join any buyer groups for the project. Collective action by buyers has been effective in some Kenya cases, both in negotiating with the developer directly and in presenting a coordinated creditor group in insolvency.
The Prevention
The most effective protection against developer insolvency is exercised before you pay, not after.
Verify the development land before any deposit. If the land carries undisclosed bank charges from before your transaction, those charges will rank ahead of you in any insolvency. A Litmus verification catches this before your money moves.
Beyond the land check, the only real protection is negotiating a milestone payment structure, so that your exposure at any given point is limited to the value of completed milestones, not the full purchase price.
KSh 21,500 for standard title verification. KSh 25,500 with field visit.
This article is for general information only. It does not constitute legal advice. If you believe a developer you have contracted with is in financial difficulty, consult a qualified Kenya advocate as early as possible.
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