What is an Acknowledgment of Debt (AOD) / Deed of Debt Acknowledgment?
An Acknowledgment of Debt (AOD) (also called a Debt Acknowledgement Agreement or Deed of Acknowledgement of Debt) is a formal document in which a debtor:
- admits or acknowledges owing a specific sum of money to a creditor, and
- undertakes to pay that sum either by a specified date or through an agreed instalment schedule.
The deed serves as a legal tool so that the creditor has a clear, liquid, formal record of the debt which can be enforced should the debtor default.
Who Can Enter Into an AOD, and When?
Any natural or juristic person (including businesses and individuals) can enter into a debt acknowledgment agreement if a debt is admitted, whether between companies, partnerships, private persons, or other entities. The debtor must have capacity: be of sound mind, not under duress, not a minor in cases where minors are not permitted to contract freely.
The creditor should be someone to whom the debt is owed or who is lawfully assigned the creditor’s rights.
When Can I Enter Into an AOD?
An AOD is ideal when:
- A debt has been incurred, and the creditor seeks formal acknowledgment
- Parties wish to avoid litigation and settle repayment terms amicably
- A creditor wants a clear, enforceable document for future legal action
It is especially useful when the debt is not disputed and the debtor is willing to commit to repayment.
What Are the Key Elements of a Valid AOD?
To be enforceable under Kenyan law, an AOD must include:
- Be in writing and signed by the debtor (or authorized company representative).
- Clearly state the amount owed, principal and interest, date incurred, and repayment terms (lump sum or instalments).
- Include consideration (goods/service provided, agreement to delay legal action).
- The debtor must be at least 18 years old and of sound mind, entering the agreement voluntarily without coercion or undue influence.
- For added validity, though optional, the AOD can be witnessed by independent witnesses signing and then registering it and paying the relevant stamp duty to strengthen enforceability.
- The amount must be “liquidated” (i.e., certain and fixed or determinable) so that legal remedies like summary judgement may apply.
Can An AOD Be Verbal or Must It Be in Writing?
While oral contracts are generally valid in Kenya, a debt acknowledgment agreement must be written to serve as liquid evidence and to allow easy enforcement via summary judgment. A verbal acknowledgment is not sufficient for strong enforcement or court action. Written agreements minimize disputes and make legal recovery straightforward.
Is an AOD the Same as a Credit Agreement?
No. While both document the existence and repayment terms of a debt, an AOD is typically executed after the debt is incurred and serves as an unequivocal admission of liability, while credit agreements create the original debt and its repayment terms. An AOD is a post-default compromise or settlement; a credit agreement is typically pre-default.
How to Enforce an AOD in Kenya
Once you have a valid AOD, enforcement may proceed as follows:
- Summary Judgment (Liquidated Claim)
- Under Order 36 of the Rules under the Civil Procedure Act, a creditor may apply for summary judgment when the claim is liquidated and undisputed. A valid AOD with clear terms can qualify.
- The burden then shifts to the debtor to show why judgment should not be granted.
- Judgment on Admission
- If the AOD contains an admission of debt (i.e., the debtor admits liability), this can be used as a ground for judgment.
- Standard Court Action
- File a suit in a court of competent jurisdiction if summary judgment is not available/appropriate. Use the AOD as evidence.
- Enforcement of Judgment
- Once judgment is secured, use traditional enforcement tools: attachment of assets, garnishment, levies, seizure, etc. Courts may issue a warrant of execution or other enforcement orders.
- Limitation Issues
- Under Kenya’s Limitation of Actions Act, contractual debts are generally actionable within six years from the date they became due.
- A written acknowledgment of debt can revive a time-barred debt if made within the limitation period. Section 25 of the Limitation of Actions Act deals with acknowledgment and part payment.
Can a foreign creditor enforce an AOD in Kenya?
Yes, a foreign creditor can enforce a Debt Acknowledgment Agreement (AOD) in Kenya, provided the AOD is recognized as a valid debt instrument and the enforcement procedures under Kenyan law are followed.
Enforcement by Foreign Creditors
- If the AOD has been converted into a judgment in the foreign creditor’s country, enforcement is possible under the Foreign Judgments (Reciprocal Enforcement) Act (Cap 43), if the originating country is on Kenya’s reciprocating list (e.g., UK, Australia, Uganda, Tanzania, Zambia, Rwanda, Seychelles, Malawi).
- For countries outside the reciprocating list, the creditor may apply to the Kenyan High Court, relying on common law principles to enforce the debt. This typically involves filing a Plaint, attaching the certified judgment or AOD, and proving jurisdiction, finality, and validity.
- The foreign creditor must show:
- The AOD is a final and conclusive admission of debt.
- It was obtained before a competent court or executed per the law in the relevant jurisdiction.
- The Kenyan court has proper jurisdiction over the Kenyan debtor.
- The AOD does not contravene Kenyan public policy or natural justice.
Key Steps and Considerations
- The process starts by registering the foreign judgment or AOD with the High Court of Kenya.
- If registration is successful, the judgment or debt attains the same force as a Kenyan High Court judgment and can be enforced through attachment, sale, or other execution proceedings.
- The limitation period for enforcement is typically six years from acknowledgment or last payment default.
Can a foreign but not Kenyan-registered company sue in Kenya for performance of an AOD?
The ability of a foreign, but not Kenyan-registered, company to sue in Kenya for performance of an AOD remains complex and currently unsettled. Recent High Court decisions have produced conflicting interpretations on whether unregistered foreign companies possess standing to sue in Kenyan courts for contract enforcement.
Current Judicial Positions
- Many High Court decisions, including Stichting Rabo Bank Foundation v Ava Chem Limited (2024), have held that a foreign company not registered in Kenya is barred from suing to enforce contract rights (including AODs) under Section 974 of the Companies Act, 2015. The rationale is that unregistered foreign companies lack legal capacity (locus standi) to maintain suits for contracts made or to be performed in Kenya.
- Other recent rulings (e.g., Bruton Gold Trading LLC v Anne Atieno Amadi, 2023) have taken a broader, constitutionally anchored view, finding that foreign companies can sue in Kenya for discrete transactions, especially where registration requirements have not been triggered by ongoing business operations. These courts distinguish between registration to “carry on business” and the right to access justice, especially if the foreign company is otherwise properly incorporated abroad and the cause of action concerns a one-off transaction.
Key Factors and Practical Guidance
- If a foreign company intends to do business regularly in Kenya (maintain an office, enter repeated contracts, hire staff), it must register to enforce contract rights, including under an AOD.
- For isolated transactions, some courts may permit suit, but recent conflicting judgments mean the position is risky and may change pending appeals.
- The safest approach for a foreign company seeking to enforce an AOD in Kenya is to first register as a foreign company under the Companies Act, 2015.
How Njaga & Co. Advocates LLP Can Help
At Njaga & Co. Advocates LLP, we support both local and foreign clients in:
- Drafting and reviewing customized AODs that comply with Kenyan law.
- Structuring repayment terms, interest, and default clauses.
- Advising foreign creditors on cross-border enforceability in light of the new High Court position.
- Filing applications for summary judgment or judgment on admission to expedite recovery.
- Tracing debtor assets and overseeing the execution of judgments.
- Negotiating settlements to avoid costly litigation.
- Helping Foreign Companies to Register in Kenya as a Branch Office or Subsidiary entities.
Disclaimer: This article provides general information and does not substitute legal advice on specific circumstances of any individual or organization. While the information is accurate as of the date published, we cannot guarantee it remains accurate at the time you read it or that it will stay current. Before acting on any of this information, please seek professional legal advice tailored to your situation.
