Group Two Presentation..

Class two B
VESTING OF PROPERTY
Vesting is the process by which assets are transferred. Therefore vesting takes place by operation
of the law and without the need for a formal transfers. Where the bankrupt holds property solely,
the entire legal and beneficial interests will vest in the trustee.
Section 104 of the Insolvency Act, provides that all property of an undischarged bankrupt he or
she acquires outside Kenya or within Kenya, shall vest in the bankruptcy trustee without that
trustee having to intervene or take away any step in relation n to the bankruptcy in the property
are extinguished. This means that immediately a bankruptcy trustee is appointed, property of the
undischarged bankrupt acquired, will vest to him automatically without the bankruptcy trustee
undergoing any conveyance process.
Section 105, property held by the bankrupt in trust for another person vests in the bankruptcy in
trust for another person vests in the bankruptcy trustee, who shall assume control of the
property.The same rights conferred to the previous bankruptcy trustee will be conferred to the
replacement bankruptcy trustee.
Section 106, property held in trust by bankrupt for another bankrupt vests in the bankruptcy
trustee, who shall assume control of the property and deal with it for the benefit of the
beneficiaries of the trust.
Exception
Section 120, if a bankrupt applies to court for an order that a disclaimed property be delivered or
vested in the bankrupt himself, and upon hearing, the court makes an order that the property be
vested or delivered in the applicant /bankrupt.
Second Bankruptcies
Sec 136 applies to and in respect of a bankrupt who, before discharge, is adjudged bankrupt for a
second time.
Property that has passed or acquired by the bankrupt since the first bankruptcy vests in the
bankruptcy trustee for the second time.
It says a surplus in the second bankruptcy in asset is an asset in the estate in the first bankruptcy,
is payable to bankruptcy trustee in the first bankruptcy.

PROPERTY EXCLUDED FROM SETTLING DEBTS IN BANKRUPTCY

Section 161 provides for a bankrupt to retain his assets making them as exclusion from settling
debts in bankruptcy. A bankrupt may choose and retain as the bankrupt’s own property assetsof a
description specified in subsection (2)upto a maximum value determined inaccordance with
subsection (3)
The assets are: the bankrupt’s necessary tools of trade; necessary household furniture and
personal effects (including: clothing) for the bankrupt and the bankrupt’s relatives
anddependants; anda motor vehicle:
The maximum value of those assets are: in the case of the bankrupt’s necessary tools of trade—
the value fixedby the bankruptcy trustee: in the case of necessary household furniture and
personal effects-
the value fixed by the bankruptcy trustee; and a motor vehicle—one million shillings or, if a
greater amount is prescribed by the insolvency regulations, that amount.
This means that a bankrupt can only retain the assets and property in regards to the value fixed
by the bankruptcy trustee as provided for in section 161 of the Insolvency Act and in situations
where the amount is greater than the amount fixed by the bankruptcy trustee,it shall as otherwise
stipulated in the insolvency regulations.

Circumstances under which the property excluded from settling debts in

bankruptcy maybe retained

Retaining of the assets with consent of creditor

Section 162 provides for Bankruptretaining certain assets with consent of creditors.A bankrupt
may retain necessary tools of trade and necessary householdfurniture and effects that are worth
more than the maximum value fixed inaccordance with section 161, if the bankrupts’ creditors
consent to it by an ordinaryresolution passed at a creditors’ meeting.
This means that the creditors have to be in consent with the bankrupt retaining the property in
order to make an exclusion to settle debts that is passed under an ordinary resolution passed at a
creditors' meeting.

Relative or dependant entitled to exercise bankrupt’s right to retainassets

If the bankrupt has died, a relative or dependant of the bankrupt, who has beenapproved for this
purpose by the bankruptcy trustee or the Court, may exercisethe right to retain assets under
section 161 or 162 for the benefit of the bankrupt’srelatives and dependants.This means that
property of the bankrupt may be excluded for settling debts in bankruptcy even if the bankrupt
has died. It will handled by the bankrupt'srelatives and dependants.
 Bankruptcy trustee may make allowance to bankrupt
Section 166 provides for the bankruptcy trustee making an allowance out of the property of
thebankrupt to the bankrupt, or to any relative or dependant of the bankrupt, for thesupport of the
bankrupt and the bankrupt’s relatives and dependants.

Thereareinstanceswhereabankruptcytrusteemayallowforthebankrupttoretainhissomeamountofmo
neyifheisdependant.ThisisprovidedforinSection167oftheInsolvencyAct.

Bankruptcy trustee may allow bankrupt to retain money

Section167(1)providesforthebankruptcytrusteemayallowthebankrupttoretain,fortheimmediatemai
ntenanceofthebankruptandthebankrupt’srelativesanddependants,moneyuptotheprescribedlimitthat
thebankrupthasinthebankrupt’spossessionorinabankaccountwhenthebankruptcycommenced.

2)Forthepurposeofsubsection(1),theprescribedlimitisonehundredthousandshillingsor,ifagreateram
ountisprescribedbytheinsolvencyregulationsforthepurposesofthissection,thatamount.

PROPERTY AVAILABLE TO SETTLE DEBTS IN BANKRUPCTY

A debtor must surrender all his properties to the creditor as seen in Section 140(1) of the
Insolvency Act. All property that the bankrupt acquires or that passes to the bankrupt.
Section 106 property held in trust by bankrupt
Property held by the bankrupt in trust for another person vests in the bankruptcy trustee, who
shall assume control of the property and deal with it for the benefit of the beneficiaries.
Money due to the bankrupt Section 107
Court may order money due to bankrupt to be assigned to the bankruptcy trustee. The court may
order that any money due to the bankrupt or any money to become due or payable to the
bankrupt is assigned to the bankruptcy trustee. Whenever the bankrupt is entitled to receive any
salary income or pension, the court may from time to time on the application of the Official
Assignee make an order for the payment to the Official Assignee.

Specialprovisionsrelatingtomatrimonialproperty
Meaning of matrimonial property
The Matrimonial Property Act has defined matrimonial property mean: the matrimonial home or
homes; household goods and effects in the matrimonial home or homes; orany other immovable
and movable property jointly owned andacquired during the subsistence of the marriage.
Anestateorinterestinanymatrimonialpropertyshallnot,duringthesubsistenceofamonogamousmarria
geandwithouttheconsentofbothspouses,bealienatedinanyform,whetherbywayofsale,gift,lease,mort
gageorotherwise.
Aspouseinamonogamousmarriage,orinthecaseofapolygamousmarriage,themanandanyoftheman’s
wives,haveaninterestinmatrimonialpropertycapableofprotectionbycaveat,cautionorotherwiseunde
ranylawforthetimebeinginforcerelatingtotheregistrationoftitletolandorofdeeds.

Aspouseshallnot,duringthesubsistenceofthemarriage,beevictedfromthematrimonialhomebyoratthe
instanceoftheotherspouseexceptbyorderofacourt.

Exceptiontothespecialprovisionsrelatingtomatrimonialproperty

Section12(3),aspouseshallnotbeevictedfromthematrimonialhomebyanypersonexcept-
onthesaleofanyestateorinterestinthematrimonialhomeinexecutionofadecree;byatrusteeinbankruptc
y;orbyamortgageeorchargeinexerciseofapowerofsaleorotherremedygivenunderanylaw.Thismeans
thatmatrimonialpropertyshallonlybecomeavailabletosettledebtsinbankruptcysincethatistheonlytim
ethematrimonialpropertyactallowsforonetobeevictedoutoftheirmatrimonialproperty.

Instances where the bankruptcy trustee maybe allowed to retain the property
available to settle debts in bankruptcy

Bankruptcy trustee’s powers in relation to goods that are subject to a credit purchase
transactions.
Section133 provides that In the case of goods to which section 131 applies, the bankruptcy
trustee may: within the thirty-day period referred to in that section, exercise anyright conferred
by any relevant written law to introduce a buyer for thegoods; orat any time before the creditor
sells or agrees to sell the goods undera power conferred by any such law or by the relevant credit
purchasetransaction, settle the bankrupt's obligations as debtor in accordancewith that law or that
transaction.This means that a bankruptcy trustee will only be allowed to introduce a buyer for the
goods as stipulated by a relevant law.

Exception

However there are restrictions on creditor dealing with the goods as provided for in the
Insolvency Act.

Restrictions on creditor dealing with goods

Section132providesforIfabankruptacquiredgoodsunderacreditpurchasetransactionbeforethebankr
uptcycommencedandthecreditoreither:

tookpossessionofthegoodswithinthetwenty-
onedaysimmediatelybeforethetimewhenthebankruptcycommenced,andafterthattimestillpossessest
hem;ortakespossessionofthegoodsafterthattimethecreditormaynotsellordisposeofthegoodsorpartw
ithpossessionofthemuntiltheexpiryofthirtydaysfromandincludingthedatewhenthecreditorservesap
ost-
possessionnoticeonthebankruptcytrustee.Subsection(1)doesnotapplyifthecreditor,withtheconsento
fthebankruptcytrustee,sellsorpartswithpossessionofthegoodsbeforetheendofthethirty-
dayperiod.This means that a creditor will only be allowed to sell the goods or part with
possession of the goods until the expiry of the thirty day period.

DISCLAIMER OF BANKRUPT’S PROPERTY

To understand what disclaimer of bankrupt’s property, one has to understand the meaning of the
word disclaimer. A disclaimer is a formal notice on a prescribed form issued by a liquidator or
trustee in respect of ‘onerous’ property. An ‘onerous’ property is any unprofitable contract and
any properting, forming part of the estate, which is unsaleable, or not readily saleable.1

A disclaimer can be issued at any time in the proceedings once the official receiver is liquidator
or trustee. For the disclaimer to become effective, any person, including the bankrupt, having an
interest in the property must be notified that the property has been disclaimed. It should be
within a period of fourteen days.2

Within fourteen days after the disclaimer, the bankruptcy trustee shall send a notice of the
disclaimer to every person whose rights are, to be bankruptcy trustee’s knowledge, affected.

A disclaimer by the bankruptcy trustee terminates the rights,interests and liabilities of the
bankruptcy trustee and the bankrupt in relation to the property disclaimed. 3 A person who suffers
loss as a result of the disclaimer may claim as a creditor in the bankruptcy for the amount of the
loss or damage taking into account an order made by the court that the disclaimer does not affect
anybody as provided in Sec 119(b) except it is necessary to release the bankruptcy trustee or the
bankrupt from a liability.

Any person bankrupt may also apply to the court for an order that the disclaimed property be
delivered to, vested in, either of the applicant. Upon hearing the application the Court may make

1
Sec 4 Insolvency Act
2
Sec 118(3) Insolvency Act
3
Sec 119(a) Insolvency Act
the order sought if satisfied that it is fair and reasonable that the property should be delivered to,
or vested in, the applicant.

Trustee losing right to disclaim the onerous property

Bankruptcy trustee may lose right to disclaim property if a person whose rights would be
affected by the disclaimer has sent a notice to the trustee requiring him to elect whether to
disclaim that property.

If the notice specifies a deadline for the disclaimer be not less than 21 days after the bankruptcy
trustee has received the notice.

The bankruptcy trustee does not disclaim that property before that deadline.

If a land disclaimed is subject to rent charge, the vesting of that land in any other person
(including the State) or the person’s successors in title, does not make any of them personally
liable for the rent charge.4

Trustee cannot claim interest in land if bankrupt remains in possession until discharge

The trustee cannot, after the bankrupt’s discharge, claim an interest in land for which the
bankrupt trustee has not registered a transmission if the bankrupt; was in possession of the
interest when the bankruptcy commenced and remained in possession until discharge from
bankruptcy.5

The trustee may apply to the court to claim the bankrupt’s interest in the land. The court upon
hearing of the application shall have regard to; the good faith of the bankrupt, time that has
elapsed since the bankruptcy commenced, value of any improvements made by the bankrupt’s
and all other relevant matters.6

Disclaim under shares

A bankruptcy trustee may disclaim any liability under shares owned by the bankrupt in any
company by disclaiming the shares as onerous property under Sec 118.

Transfer of shares after disclaimer

The trustee may transfer shares subject to any other written law and the to the company’s
constitution, to any person who has an interest in them. If the person refuses to accept the
4
Sec 122(1) Insolvency Act
5
Sec 124(1) Insolvency Act
6
Sec 124(b) Insolvency Act of 2015
transfer or has no interest in them, the trustee may transfer the shares to the bankrupt if he
consents, and in that case the bankrupt is entitled as against the bankruptcy trustee to retain the
shares and the proceeds if the bankrupt sells them.7

If the bankruptcy trustee does not transfer the shares to a person who has interest in them or the
bankrupt, directors of the company may: sell the shares or with the court’s approval cancel the
shares if they believe it is in the company’s best interest to do so.8

The bankruptcy trustee is a director of the company for the purposes of transferring, selling or
cancelling the shares if:

Immediately before the bankruptcy commenced, the bankrupt was a director of the company.

Numbers of directors is fewer than the minimum number of directors required by the Company
Act, 2015 or the company’s constitution as a result of the bankrupt’s disqualification as a
director.9

Company may prove for unpaid calls

It will apply if the bankruptcy trustee has disclaimed liability under the shares and the company
is not in liquidation. Company may prove in bankruptcy for:

a) The amount of unpaid calls made before the bankruptcy commenced in respect of the
bankrupt’s shares
b) Value of calls to be made in respect of the bankrupt shares within one year after the
bankruptcy commenced.
If the bankruptcy trustee and the company cannot agree, the court, May on the application
of either of them, make an order determining the value of the calls to be made.

7
Sec 126(2) Insolvency Act of 2015
8
Sec 129(2) Insolvency Act of 2015
9
Sec 129(4) Insolvency Act of 2015