In a recent judgment in the High Court of Kenya provided important clarification on the enforcement of loan guarantees where recovery through charged property has failed. In Bank of India Kenya v We Hotel and Suites Limited & 2 others [2025] KEHC 18539 (KLR), the Court affirmed that a lender is entitled to pursue guarantors for outstanding loan amounts notwithstanding unsuccessful attempts to realise charged security through public auction.

The dispute arose from commercial loan facilities advanced by Bank of India Kenya to We Hotel and Suites Limited, together with an associated entity, amounting to approximately Ksh 231 million. The facilities, initially extended in 2012 and 2015, were secured by charges over property owned by the borrower. In addition, the hotel’s directors executed personal guarantees in favour of the bank to secure repayment of the facilities. The loan arrangements were later restructured in 2017 through a supplementary agreement following challenges in servicing the debt.

After the borrower defaulted in 2021, the parties entered into a Deed of Settlement under which the hotel acknowledged an outstanding indebtedness of approximately Ksh 321 million, reflecting principal, interest, and accrued charges, and undertook to repay the same. However, the settlement terms were not honoured. The bank thereafter exercised its statutory power of sale and advertised the charged property for auction on three separate occasions, but the auctions failed to attract bids sufficient to satisfy the outstanding debt.

Following the failed auctions, the bank instituted proceedings against the hotel’s directors in their personal capacities as guarantors, seeking recovery of the unpaid sums together with interest and costs. The defendants  argued that the suit was barred by res judicata due to prior proceedings involving the borrower. In addition,  the restructuring and settlement arrangements had discharged their obligations as guarantors and that the bank was required to exhaust all security options before pursuing them personally.

The Court dismissed the defendant’s arguments by holding  that the doctrine of res judicata did not apply, as the earlier proceedings involved the borrower company and not the directors in their personal capacities as guarantors. The Court further observed that a guarantor’s liability is separate and distinct from that of the principal borrower and is not extinguished by loan restructurings or settlement arrangements unless there is an express and unequivocal release of the guarantor. The existence of a settlement agreement with the borrower therefore did not discharge the guarantees.

Significantly, the Court rejected the argument that a lender must exhaust all available security before enforcing a guarantee. It emphasized that the law does not impose such a requirement and that failed attempts to sell charged property does not bar a lender from proceeding against guarantors once a default has occurred. Having found that the debt remained outstanding and that the guarantees were valid and enforceable, the Court entered judgment against the borrower and the guarantors jointly and severally for the sums due, together with interest and costs. The Court also declined to award general damages for alleged business loss, noting that such relief is generally unavailable in claims founded on contractual debt

This judgment underscores the robustness of contractual guarantees in Kenya’s commercial lending context and provides assurance to financial institutions that properly documented credit facilities and guarantees will be upheld by the courts. It also highlights the importance for borrowers and guarantors alike to understand the full scope of their obligations under loan agreements and related instruments. For lenders, this decision supports strategic recovery efforts where primary security realization is not viable, reinforcing the enforceability of personal guarantees as a tool for debt recovery.