Introduction

Cross-border financing remains a critical driver of economic growth in emerging markets, including Africa. However, international financiers must navigate diverse legal landscapes when enforcing their rights in different jurisdictions. Recent judicial developments, such as the High Court of Kenya's decision in Stichting Rabo Bank Foundation v. Ava Chem Limited & Another [2024] KEHC 9931 (KLR), highlight the risks that foreign lenders may face if local regulatory requirements are not carefully considered.

This article examines the Kenyan court's approach and compares it with the position under Tanzanian law, with a particular focus on the registration requirements for foreign companies seeking to enforce loan agreements in Tanzania.

Brief facts

In Stichting Rabo Bank Foundation, the High Court of Kenya dismissed a suit by the Dutch development financier for want of locus standi. The Stichting Rabo Bank Foundation (the Plaintiff or Foundation) had advanced a loan of more than US$180,000 to Ava Chem Limited (Ava Chemical or the Defendant) in Kenya. Upon default, the Plaintiff filed a suit at the High Court in Kenya (the Court) seeking repayment of the amount due from Ava Chemical. However, the Court held that because the Plaintiff was not registered as a foreign company under section 974 of Kenya's Companies Act, 2015, it lacked legal standing to sue.

The Court emphasised that a foreign company, even if not physically present, must register locally to maintain proceedings in Kenyan courts of law. This ruling, though specific to Kenya, echoes wider concerns for international financiers supporting projects in various jurisdictions, especially in Africa. The decision of the Court could significantly affect international financers' appetite to advance loans to businesses in certain countries, which drives us to assess how this matter would be treated under Tanzanian law and whether international financiers are required to be registered locally before they can exercise their rights of recovery in courts of law in Tanzania.

Recognition of foreign companies under Tanzanian corporate law

The Companies Act, Cap. 212 of the laws of Tanzania (Companies Act) requires foreign companies to be registered with the Business Registrations and Licensing Agency (BRELA) if they establish a "place of business" in Tanzania. A foreign company must deliver documents and particulars specified under the Companies Act for registration with BRELA within 30 days of establishing a place of business in Tanzania.

A foreign lender that advances loan facilities to a local company or person is not considered to have established a place of business requiring registration.

Thus, under Tanzanian law, the mere act of advancing loans to a Tanzanian entity does not, in itself, create an obligation for a foreign lender to register as a foreign company. The concept of "establishing a place of business" generally contemplates a more permanent or substantial presence, such as opening an office, appointing local representatives with authority to conclude contracts or engaging in continuous business operations within Tanzania.

This distinction is important, as it ensures that foreign lenders, such as development finance institutions and international banks, are not burdened with local registration requirements solely by virtue of their lending activities. Accordingly, a foreign lender who simply provides a loan facility to a Tanzanian borrower retains the right to institute court proceedings in Tanzania for the enforcement of its rights without being required to first register under the Companies Act.

However, it is important to note that Tanzanian courts have emphasised the need for foreign plaintiffs to demonstrate proper legal capacity to sue, including proof of their legal existence under their jurisdiction of incorporation. This typically involves submitting certified copies of incorporation documents and, where necessary, affidavits verifying their status under foreign law. Failure to provide sufficient proof of legal capacity may result in challenges to a foreign lender's standing in Tanzanian proceedings, though not on the same basis as registration under the Companies Act.

Implications for international financiers

The approach under Tanzanian law offers a more facilitative framework for international financiers compared to the position in Kenya, as reflected in Stichting Rabo Bank Foundation. It reduces regulatory barriers for cross-border lending into Tanzania and reinforces Tanzania's attractiveness as a jurisdiction for international finance transactions. Nevertheless, international financiers should take care to properly document their legal existence and authority when initiating court proceedings in Tanzania and ensure their loan agreements are clearly governed by enforceable terms to avoid procedural challenges.

Although registration under the Companies Act is not mandatory for a foreign lender merely advancing loans, compliance with other procedural requirements when instituting court proceedings remains essential. Under Tanzanian practice, a foreign plaintiff should provide sufficient proof of its legal existence, typically by submitting duly certified copies of its certificate of incorporation or other founding documents. If these documents are in a language other than English, a certified translation should be provided.

Another important consideration is the potential requirement to provide security for costs. Tanzanian courts may, at their discretion, order a foreign plaintiff to deposit an amount as security to ensure that, should the defendant succeed in the matter, its legal costs will be recoverable. Failure to observe these procedural requirements can expose a foreign lender to the risk of delays, procedural objections or even dismissal of its claim, irrespective of the substantive merits.

In light of these nuances, international financiers advancing loans into Tanzania must proactively structure their transactions to mitigate enforcement risks. Loan agreements should be carefully documented from the outset to establish the lender's legal existence and its authority to enforce contractual obligations in Tanzania. In addition, careful consideration should be given to the selection of dispute resolution mechanisms. Where appropriate, lenders may opt for arbitration clauses seated in neutral venues, which may offer more predictable enforcement outcomes.

Equally, it is critical for lenders to carefully structure their security packages, ensuring that any collateral provided by the borrower is duly perfected and enforceable under Tanzanian law. Reliance solely on the creditworthiness of the borrower, without adequate secured interests, may expose the lender to increased risks in the event of default.

By adopting a legally robust and strategic approach at the inception of the transaction, international financiers can protect their interests while maintaining confidence in the growing Tanzanian and regional markets.

Conclusion

The divergent approaches between Kenya and Tanzania regarding the legal standing of foreign financiers underscore the importance of understanding local regulatory and procedural frameworks when structuring cross-border transactions. While Kenya's strict requirement for foreign lenders to register as foreign companies poses significant barriers to enforcement, Tanzania adopts a more facilitative stance by not requiring registration where no permanent place of business is established.

Nonetheless, foreign lenders must remain vigilant in complying with Tanzanian procedural requirements, particularly in demonstrating legal existence, authority to act and, where necessary, providing security for costs. Thoughtful transaction structuring from carefully drafted documentation to well-considered dispute resolution and security arrangements is essential to ensure effective enforcement of rights.

As international financing into African markets continues to expand, appreciating these jurisdictional nuances will be critical for lenders seeking to balance opportunity with legal certainty.