Commercial Transactions- Insolvency Documentation

What is insolvency?

 Bankruptcy is a proceeding by which this state takes possession of the property of a

debtor to realize and distribute it rateably amongst persons to whom the debtor
owes money. The state does this through its officer called the Official Receiver (OR).

During bankruptcy proceedings a debtor obtains certain immunities from suits from
his creditors and after it is determined that he was not guilty of serious misconduct
leading to his bankruptcy, he can be discharged from his debts and liabilities. The
determination of innocence is done through what is called “public examination of
the debtor”.

The consequences of bankruptcy are that one subjects himself to certain

disqualifications as a citizen e.g. – Being disqualified to run for MP or to hold certain
public offices.

What constitutes bankruptcy?

S3 Bankruptcy Act provides that (1) A debtor commits an act of bankruptcy in each of the
following cases -

(a) if in Kenya or elsewhere he makes a conveyance or assignment of his property to a

trustee or trustees for the benefit of his creditors generally;

(b) if in Kenya or elsewhere he makes a fraudulent conveyance, gift, delivery or transfer of

his property, or of any part thereof;

(c) if in Kenya or elsewhere he makes any conveyance or transfer of his property, or of any
part thereof, or creates any charge thereon, which would under this or any other Act be
void as a fraudulent preference if he were adjudged bankrupt;

(d) if with intent to defeat or delay his creditors he does any of the following things,
namely, departs out of Kenya, or being out of Kenya remains out of
Kenya, or departs from his dwelling-house, or otherwise absents himself, or begins to
keep house;

(e) if execution against him has been levied by seizure of his goods in any civil proceeding
in any court, and the goods have been either sold or held by the bailiff for twenty-one
days:

Provided that, where an interpleader summons has been taken out in regard to the goods
seized, the time elapsing between the date at which the summons is taken out and the
date at which the proceedings on the summons are finally disposed of, settled or
abandoned shall not be taken into account in calculating the period of twenty-one days;

(f) if he files in the court a declaration of his inability to pay his debts or presents a
 bankruptcy petition against himself;

(g) if a creditor has obtained a final decree or final order against him for any amount, and,
execution thereon not having been stayed, has served on him in Kenya, or, by leave of the
court, elsewhere, a bankruptcy notice under this Act, and he does not within seven days
after service of the notice, in case the service is effected in Kenya, and in case the service
is effected elsewhere then within the time limited in that behalf by the order giving
leave to effect the service, either comply with the requirements of the notice or satisfy
the court that he has a counter-claim, set-off or cross-demand which equals or exceeds
the amount of the decree or sum ordered to be paid, and which he could not set up in the
action in which the decree was obtained, or the proceedings in which the order was
obtained; and for the purposes of this paragraph and of section 4, any person who is, for
the time being, entitled to enforce a final decree or final order shall be deemed to be a
creditor who has obtained a final decree or final order;

(h) if the debtor gives notice to any of his creditors that he has suspended, or that he is
about to suspend, payment of his debts.

Bankruptcy Notice (BN)

Once it has been established that one has committed an act of bankruptcy, what follows is
the issuance of a BN.

Rule 99, 100, 102 bankruptcy rules

 Provides that a creditor desirous that a BN may be issued shall produce to the
registrar an office copy of the judgement or order on which the notice is founded
and file the notice together with a request for issue; the creditor shall at the same
time lodge with the registrar two copies of the BN to be sealed and issued for
service.

 The request for issue of the BN is done using Form 4, and the notice itself will
appear in the format in Form 5.

Rule 100 provides that (1) Every bankruptcy notice shall be endorsed with the name and
place of business of the advocate actually suing, or, if no advocate is employed, with a
memorandum that it is sued by the creditor in person.

 There shall be also endorsed on every bankruptcy notice an intimation to the

debtor that if he has a counter-claim, set-off or cross-demand which equals or
exceeds the amount of the judgment debt, and which he could not have set up in
the action in which the judgment or order was obtained, he must within the time
specified in the notice file an affidavit to that effect with the registrar.

 In the case of each notice the registrar when issuing the notice shall fix that time.

Rule 102 provides that the BN to served within 1 month from the date of issuance
 What does the BN require the debtor to do?

 Pay the debt decreed or ordered to be paid by him; or

 To secure or compound for it to the satisfaction of the creditor or court.

 BN must also tell the Debtor what will be the consequences if he fails to comply
with the notice, in the manner set out in the Endorsement notice

Rule 101 (where the debtor disputes the BN)

 Provides that a debtor who disputes the debt upon which a BN is based, may
apply to set aside the BN affidavit, whereupon the registrar shall fix a day for
hearing the application, and not less than three days before the day fixed shall
give notice thereof both to the debtor and the creditor, and to their respective
advocates if known.

 If the application cannot be heard until after the expiration of the time specified
in the notice as the day on which the act of bankruptcy will be complete, the
registrar shall extend the time, and no act of bankruptcy shall be deemed to have
been committed under the notice until the application has been heard and
determined.

FORM No. 4

REQUEST FOR ISSUE OF BANKRUPTCY NOTICE

In the High Court of Kenya

In Bankruptcy.

1. I, C.D., of ......... hereby request that a bankruptcy notice be issued by this Court against
[here insert name, description and address of judgment-debtor].

2. The said A.B. has for the greater part of the past six months resided at .............. [orcarried
on business at ..............] within the jurisdiction of this Court.

3. I produce an office copy of a final judgment against the said A.B. obtained by [me] in
the ........ ..... Court on the ........ day of ....................

4. Execution on the said judgment has not been stayed. Dated this ...... day of ...................
19....

(Signed)C.D.

[or]

E.F., solicitor for the judgment-creditor.

NOTE. - Where the debtor resides at a place other than his place of business, both addresses
should be inserted.

FORM No. 5

BANKRUPTCY NOTICE

(Title)

ToA.B. [orA.B.& Co.] .............................. of ............................

TAKE NOTICE that within [seven] days after service of this notice on you, excluding the day of
such service, you must pay to .............. of .................. [or
to ............................................................. of............ ...................... his [or their] agent duly
authorized] (a) the sum of £........ ..........claimed by (b) ................. as being the amount due
on a Final Judgment or Order obtained by (c) .......................... against you in the Court, dated
.............. whereon execution has not been stayed, or you must secure or compound for the
said sum to (
d) .....................satisfaction [or the satisfaction of his [or their] said agent] (a) or to the
satisfaction of the Court; or you must satisfy the Court that you have a counter-claim, set-off
or cross-demand against (c) ..................... which equals or exceeds the sum claimed by
(c) ......................... and which you could not set up in the action or other proceedings in
which the Judgment or Order was obtained.

Dated this ........................ day of ................... ,19....................

By the Court Registrar.

ENDORSEMENT ON NOTICE

You are specially to note:

That the consequences of not complying with the requisitions of this notice are that you will
have committed an act of bankruptcy, on which bankruptcy proceedings may be taken
against you.

If, however, you have a counter-claim, set-off or cross-demand which equals or exceeds the
amount claimed by (e) .............. in respect of the Judgment or Order and which you could
not set up in the action or other proceedings in which the said Judgment or

Order was obtained, you must within ...................... days apply to the Court to set aside this
notice by filing with the Registrar an affidavit to the above effect

(f) ...............................
...............................
Petitions

S6 BA provides that a creditor is not entitled to present a petition unless:

 the debt owing by the debtor to the petitioning creditor, or, if two or more creditors
join in the petition, the aggregate amount of debts owing to the several petitioning
creditors, amounts to one thousand shillings; [debt threshold]

 the debt is a liquidated sum, payable either immediately or at some certain future
time;

 the act of bankruptcy on which the petition is grounded has occurred within three
months before the presentation of the petition; [debt liquidated]

 the debtor is domiciled in Kenya, or within a year before the date of the
presentation of the petition has ordinarily resided, or had a dwelling-house or place
of business, or has carried on business, in Kenya, personally or by means of an agent
or manager, or is or within that period has been a member of a firm or partnership
of persons which has carried on business in Kenya by means of a partner or
partners, or an agent or manager

 nor, where a deed of arrangement has been executed, shall a creditor be entitled to
present a bankruptcy petition founded on the execution of the deed, or on any
other act committed by the debtor in the course or for the purpose of the
proceedings preliminary to the execution of the deed, in cases where he is
prohibited from so doing by any law for the time being in force relating to deeds of
arrangement.

Note: a creditor who has security must disclose that and that he is willing to give it up or give
an estimate of its value

Presentation of the petition

 Bankruptcy petitions are required to be in statutory forms. A debtor’s petition takes

from No. 3 while that of a creditors in form No. 9. The petition may be in writing or
in print without any interlineations or erasures.- Rule 105

 S7 BA A creditor’s petition must be verified by an Affidavit of the creditor or

someone having knowledge of the facts – (Form No. 11 or 12)

Requirements of the petition

 All petitions must give the name and description of the debtor and give his address.
If the debtor was residing or doing business at a place other than where he was
residing or doing business when he committed the act of bankruptcy, his old address
must also be disclosed.

 All bankruptcy petitions are required to be attested. In Kenya, this is usually done by
 an Advocate or, the receiver or the registrar or DR of the HC. If the petition is
attested out of Kenya it is usually witnessed by a Notary Public.

 Rule 108 Upon the presentation of a petition, the petitioner, if a debtor, shall
deposit with the receiver the sum of seven hundred shillings or, if a creditor, the
sum of one thousand shillings, and such further sum (if any) as the court may from
time to time direct, to cover the fees and expenses to be incurred by the receiver.
He should then obtain a receipt from the receiver to show to the court.

 Petitions must be served personally on the debtor. H/W, if personal service

becomes impossible one can apply to the court to allow the petition to be served by
substituted service (either service on any adult residing with the debtor or by
registered post or by advertisement in a newspaper). Proof of service is done by an
affidavit of service. Where the debtor dies before the petition is served on him,
service may by effected on his personal representative or such other person as the
court may prescribe.

Appointments
 After a BP has been filed, either the creditor or the debtor may apply to the court
for the appointment of a receiver as an interim receiver of the property of the
debtor before a Receiving Order (RO) is made (S.10). Such an order must be sent
by the registrar of the HC to the OR.

 The order appointing an interim receiver authorising such a receiver to take

possession of the debtor’s property. An application for the appointment of an
interim receiver and the order following thereon take Form No. 13. A person
applying for the appointment of an interim receiver is required to deposit a
certain amount with the official receiver to cover his expenses.

Hearing of the Petition

 Where a petition is filed by the debtor, the court will make a RO immediately.
H/W a creditor’s petition can only be heard after the expiry of 8 days from its service
unless the petition is based on the fact that the debtor filed a declaration of inability
to pay his debts. Additionally, the court may in exceptional cases hear a creditor’s
petition before the expiry of 8 days after service where for example the debtor has
absconded.

 A debtor who intends to oppose a Petition against him may do so by filing a Notice
of intention to oppose the petition in Form No. 17. In such notice, he is required to
specify the statements in the Petition which he intends to deny or dispute. Such
notice must be served at least 3 days before the day of hearing. If the debtor does
not appear on the day of hearing, the court may proceed ex parte. If the debtor files
a notice to oppose the petition and appears on the day of hearing, the court will first
hear the question of validity of the creditor’s debt. In that event the debtor shall be
allowed to call witnesses and lead evidence to challenge the debt before the
petition can be listed for hearing. If the court finds that the debt is valid, it shall fix
 the petition for hearing and notify the parties to it. If the court finds that the debt is
invalid, the debtor may apply to the court to dismiss the petition

 If a creditor fails to appear at the hearing of his petition, the petition will lapse and
that creditor will lose the right to bring another petition based on the same facts.
However, such a creditor may for good reason apply for leave of the court to do so.

What must the petitioner prove?

 S7(2) (3) BA requires that the petitioner prove:

o The debt
o That the petition was served; and
o The act of bankruptcy

Note: All petitions once filed cannot be withdrawn just like that. Whether it is the debtors
or creditor’s petition, the petitioner must apply to the court for leave to withdraw it (see ss.
8(2) and 7(7) of bankruptcy Act respectively).

FORM No. 9

CREDITOR'S PETITION

(Title)

I, C.D., of ................ [or We. C.D., of ................................. and E.F., of ..................], hereby
petition the Court that a receiving order may be made in respect of the ..................estate of
(a) .................. of (b) .................. and lately carrying on business at [or residing at]
(c) ...................., and say: -

1. That the said A.B. has within the period of one year preceding the presentation of this
petition resided [or carried on business] at ................ within the jurisdiction of this Court.

2. That the said A.B. is justly and truly indebted to me [or us] in the aggregate in the sum of
£........ [set out amount of debt, debtors and the consideration).

3. That I [or we] do not, nor does any person on my [or our] behalf hold any security on the
said debtor's estate, or any part thereof, for the payment of the said sum.

Or

That I hold security for the payment of [or part of] the said sum, but that I will give up such
security for the benefit of the creditors of A.B. in the event of his being adjudged bankrupt
[or and I estimate the value of such security at the sum of £..........]
 Or

That I, C.D., one of your petitioners, hold security for the payment of, &c.

Or

That I. E.F., another of your petitioners, hold security for the payment of, &c.

4. That A.B. within three months before the date of the presentation of this petition has
committed the following act [or acts] of bankruptcy, namely [here set out the nature and
date or dates of she act or acts of bankruptcy relied on].

Dated this ...... day of .............................. ,19........

(Signed) C.D.
E.F.

Signed by the petitioner in my presence:

Signature of witness....................................................................................

Address.......................................................................................................

Description....................................................................................................

NOTE. - If there is more than one petitioner, and they do not sign together, the signature of
each must be separately attested, e.g. "Signed by the petitioner E.F. in my presence", etc. If
the petition is signed by a firm, the partner signing should add also his own signature, e.g.
"A.S. & Co. F.S., a partner in the said firm". If the debtor resides at any place other than the
place where he carried on business both
addresses should be inserted.

Endorsement

This petition having been presented to the Court on the ...... day of ..................... 19... , it is
ordered that this petition shall be heard at [insert the place at which the debtor is to attend
on the Receiver] on the ...... day of ................... 19...., at ...... o'clock in the ...... noon.

And you the said A.B. are to take notice that if you intend to dispute the truth of any of the
statements contained in the petition you must file with the Registrar of this Court a notice
showing the grounds upon which you intend to dispute the same, and send by post a copy of
the notice to the petitioner [three] days before the date fixed for the hearing.

FORM No. 11

AFFIDAVIT OF TRUTH OF STATEMENTS IN PETITION

 (Title)

I, the petitioner named in the petition hereunto annexed, make oath [if the petitioner
declare or affirm, alter the form accordingly]and say: -

That the several statements in the said petition are within my own knowledge true.

Sworn at, &c.

NOTE. - If the petitioner cannot depose that the truth of all the several statements in the
petition is within his knowledge, he must set out the statements the truth of which he can
depose to, and file a further affidavit by some person or persons who can depose to the truth
of the. remaining statements.

AFFIDAVIT OF TRUTH OF STATEMENTS IN JOINT PETITION

(Title)

We.C.D, . E.F., G.H..&c., the petitioners named in the petition hereunto annexed, severally
make oath and say:-

And first I. the saidC.D..for myself say;-

1. ThatA.B.is justly and truly indebted to me in the sum of............ as stated in the said
before-mentioned petition.

2.That the saidA.B.committed the act [or acts] of bankruptcy slated to have been committed
by him in the said before-mentioned petition,

3. ThatA.Bhas for the greater part of the past six months resided [or carried on business]
at ................

And I . the saidE.F.., for myself say; -

4.ThatA.B. is justly and truly indebted to me in the sum of..... as stated in the said before-
mentioned petition.

And I. theG.H,, for myself say;

5. ThatA.B. is, &c.

Sworn by the deponents C.D., E.F. and G.H. at. &c.

FORM No. 13

APPLICATION FOR INTERIM RECEIVER

 (Title)

I, C.D. of ............... do, on the grounds set out in the annexed affidavit, apply to the Court to
appoint some fit and proper person as Interim Receiver of the property of the said A.B. and
[insert any special directions to the Receiver that may be desired].

Dated this .... day of ....................................... ,19......

(Signed) C.D.

ORDER THEREON

Upon reading this application and the affidavit therein referred to, and hearing ...................
it is ordered that upon a deposit of £........ being lodged by the applicant,X.Y.,
of ............... ,be thereupon constituted Interim Receiver of the property of the saidA.B. and
[insert directions, if any].

Dated this ...... day of ...........................................,. 19....

 Receiving Orders (RO)

 A receiving order is made automatically on the presentation of a petition by the

debtor if the debtor has filed with the OR his statement of affairs. This will take the
form of Form 26.

 Where a petition is presented by a creditor and after hearing it, the court is
satisfied that a debtor has committed an act of bankruptcy, it shall issue a RO. A
RO made on a creditor’s petition must state the date of the act of bankruptcy on
which it is made and contain a notice requiring the debtor to attend on the OR
forthwith on service of the order at the place named in it. This will take the form of
Form 27.

 Rule 140 provides that a copy of the RO and of the order for the appointment of the
receiver as interim receiver of the debtor’s property, sealed with the seal of the
court, shall be sent by post or otherwise the registrar to the receiver.

 Rule 141 the receiver shall cause a copy of the receiving order sealed with the seal
of the court to be served on the debtor. The advertisements take the form of Form
29 and 30

What must be included in every notice in the Kenya Gazette?

 S13 BA provides that the following should be specified:

o Name of the debtor;
o Its residential or business address;
o Description of the debtor;
o The date when the order was made;
o The court which made the order; and
o The date of the petition

Effect of an RO (S9( BA)

 On the making of a RO, the official receiver becomes the receiver of the property of
the debtor. From that time on no creditor to whom the debtor is indebted in
respect of any debt provable in bankruptcy can have any remedy against the
property or person of the debtor in respect of the debt. This also means that no
creditor can sue the debtor except where the court grants special permission in that
regard. However, this provision does not affect the rights of a secured creditor (S. 9
(1) (2))

 Note: In special cases, the official receiver may allow, on the application of a creditor
or creditors the appointment of a special manager to be manager of the estate and
business of the debtor in his place until a trustee thereof is appointed. This may be
the case where the nature of the debtor’s estate or business is complex.
Challenging an RO

 A debtor who wishes to challenge a RO made against him may do so by making an

application to the court to rescind it on the grounds that he has paid the debt in
question in full. In that case he must give at least a 7 days notice of such intention.
Once served with notice of the hearing of such an application, the official receiver is
required to make and file four days before the appointed day for hearing of the
application a report of the debtors conduct and affairs. Such report is usually
considered as prima facie evidence of the statements therein contained. However
on the hearing of such an application by the debtor, the court is entitled to take into
account such further evidence as may be adduced by any party including any
objections by any of the creditors affected.

FORM No. 27

RECEIVING ORDER ON CREDITOR'S PETITION

(Title)

On the petition dated the .................. day of ......................., 19.............., and numbered ......
of 19.... ofJ.S., of ............... a creditor, filed the [insert date] and on reading .................. and
hearing ................. and it appearing to the Court that the following act or acts of bankruptcy
has or have been committed, viz.: [set out the nature and date or dates of the act or acts of
bankruptcy on which the order is made).

A receiving order Is hereby made againstA.B. [insert name, addresses and descriptions of
debtor as set out in petition] andC.D, is hereby constituted Receiver of the estate of the said
debtor.

Dated this .............., day of ................... 19....

By the Court,
Registrar.

NOTE. - The above-named debtor is required, immediately after the service of this order
upon him, to attend the Receiver appointed by the Court at his offices at
(a) .......................................................

The Receiver's offices are open (except on holidays) every weekday from 9 a.m. to 4 p.m.,
except on Saturdays, when they close at 1 p.m.

Endorsement on Order

The name and address of the advocate to the petitioning creditor are [insert name and
address],
 FORM No. 29

NOTICE OF RECEIVING ORDER, ETC. (FOR LOCAL PAPER)

(Title)

Receiving order made ............................................................................

Date of adjudication (if any) ...................................................................

Date and place of first meeting ...............................................................

Date of public examination .....................................................................

NOTE. - All debts due to the estate should be paid to me.

Dated this ....................... day of ........................................... 19....

(Signed) .............................. Official Receiver.

FORM NO. 30

NOTICE OF RECEIVING ORDER, ETC., IN SUMMARY CASES

(FOR LOCAL PAPER)

In Bankruptcy.

ReA.B.,of [insert here, as concisely as possible, name. address and description of debtor, and
add where Court held and No. of proceedings).

Receiving order made .........................................................................

Date of order for summary administration .............................................

Date of adjudication (if any) ....................................................................

Date and place of first meeting .......................................................... ....

Date of public examination ....................................................................

Dated this ............................. day of .................................. 19.............

(Signed) ................. Official Receiver.

 Proceedings consequent on the making of an RO

Fist Meeting of Creditors

 S14 BA provides that as soon as may be after the making of a receiving order against
a debtor, a general meeting of his creditors (in this Act referred to as the first
meeting of creditors) shall be held for the purpose of considering whether a
proposal for a composition or scheme of arrangement shall be accepted, or whether
it is expedient that the debtor shall be adjudged bankrupt, and generally as to the
mode of dealing with the debtor's property.

 S16 BA provides that the debtor shall make and submit to the official receiver a
statement of and in relation to his affairs, verified by an affidavit and showing:

o A debtor’s assets;
o His debts and liabilities;
o The names, residences and occupations of his creditors; and
o The securities held by his creditors and the dates when they were given

 In the case of a bankruptcy petition by a debtor, the statement of affairs is required

to be submitted to the official receiver at least 3 days before he presents his
petition. In that event the official receiver is required to certify to the court that the
statement has been submitted to him.

 In the case of a petition by a creditor, the statement of affairs is required to be

submitted by the debtor to the official receiver within 14 days of the making of the
RO. However, the official receiver may, for good reason, extend the time for the
submission of this.

How is the statement made out?

 It is the responsibility of the RO to furnish the debtor with instructions to prepare his
statement of affairs. The instructions are in a form (Form No. 31), which the debtor
is required to fill out. It must be prepared in duplicate.

 Once the debtor submits his statement of affairs to the official receiver it is the
responsibility of the official receiver to file it in court.
 FORM No. 31

STATEMENT OF AFFAIRS

To the Debtor:(Title)

You are required to fill up, carefully and accurately, this sheet, and such of the several sheets
A, B, C, D, E, F, 0, H. 1, J and K(1), as are applicable, showing the state of your affairs on the
day on which the receiving order was made against you, viz., the ........ day of..................
Such sheets, when filled up, will constitute your statement of affairs.

When completed such statement must be verified by oath or declaration.

Gross liabilities

Proof of debts

 All creditors must take steps to prove their debts as soon as is practicable after the
RO has been made. This is done by delivering or sending by post to the official
receiver or trustee (where one has been appointed) an affidavit verifying the debt.
The affidavit may be sworn by the creditor himself or by some person authorized to
do so on his behalf. The verify affidavit must fulfill the following.

 It should contain or refer to a statement of account showing the particulars of

the debt

 Specify any vouchers by which the statement can substantiated. Where

vouchers are specified, a creditor should always be ready to produce them. If
required to do so by the official receiver or trustee;

 It should specify whether the creditor is secured or not. If a secured creditor fails
to disclose his security he risks forfeiting it altogether.

 It is the duty at the trustee or official receiver to admit or reject proofs of debt.
What he does is to examine it and the grounds on which it is made. If there is no
sufficient evidence he may reject it. His decision may be appealed from by applying
to court for review.

Public examination of debtor

 Once a RO has been made, the official receiver is required to apply to the court to fix
a day for holding the Public examination of the debtor. This is done after the debtor
has submitted to the OR his statement of affairs. The purpose of the examination is
to see into the debtor’s conduct, dealings and property.
 Composition or scheme of arrangement

 Once a RO has been made and the debtor intends to make a proposal for a
composition in satisfaction of his debts or a proposal for a scheme of arrangement
of his affairs he is required to lodge with the official receiver a written proposal
setting out the terms of his composition or scheme to be considered by his creditors.
The composition or scheme is required to be lodged within 4 days of the submission
of the statement of affairs or such other longer period as the official receiver may
direct. The debtor must sign the composition or scheme and set out in it particulars
of any sureties or securities he wishes to give.

Consequences where a proposal is approved by the court

 Once a composition or scheme is approved by the court the official receiver is

expected, after paying all relevant costs and expenses incidental to the
proceedings to put the debtor back into possession of his property. Alternatively
the debtor may appoint a trustee or his agent in the proposal to take possession
of his property. The RO will also be discharged.

 Any creditor can oppose the application for approval of any proposal even if he
voted in its support at the meeting of creditors. In deciding whether or not to
approve a proposal, the court will consider such objections as well as the report
of the official receiver.

 A composition or scheme duly approved operates as a contract between the

debtor and his creditors and any party who has an interest in it may apply to the
court to enforce it.

 If a debtor defaults on the proposal approved by the court he risks being

adjudged bankrupt and the composition or scheme being annulled. In that case,
the debtor’s property shall once again automatically vest in the official receiver.
 Adjudication of Bankruptcy

A debtor can only be adjudged bankrupt after the RO has been made. One will be adjudged
bankrupt in the following cases:

(a) When the debtor applies to be adjudged bankrupt. The debtor may make such
an application at the time of making a RO or at any time thereafter. This kind of
application need not be done after notice and even be made orally (R. 180)

(b) When creditors do not attend the 1 st meeting of creditors or the subsequent
meetings (no quorum is attained).

(c) Or where the debtor absconds,

(d) Or where the debtor does not make any proposal (R. 181). In that event, the
official receiver or any creditor may apply to the court to have the debtor
adjudged bankrupt.

(e) Where the creditors refuse to accept a composition or scheme made by the
debtor at their meeting of creditors. In that case, the official receiver or any
interested party may apply to the court for the debtor to be adjudged bankrupt.
(R. 182)

(f) Where the public examination of the debtor has been adjourned sine die
(indefinitely). In that case, the court may adjudge the debtor bankrupt even
without notifying him. (R. 183). A public examination may be adjourned sine die
in the following cases:

i) Where the debtor fails to disclose his affairs;

ii) Where the debtor fails to attend the public examination;
iii) Where the debtor fails to comply with any order of the court in relation to
his accounts, conduct, dealings and property. (refer 155)

(g) Where the creditors resolve at their meeting to have the debtor declared
bankrupt or they fail to pass any resolution (see 20). Resolution in form No. 43

(h) If a composition or scheme is not approved within 14 after the conclusion of the
public examination of the debtor. (see 20)

(i) If the debtor with the concurrence of the official receiver consents in writing to
be adjudged bankrupt (see 20).

The order of adjudication

Upon adjudication of bankruptcy, the property of the debtor becomes divisible among his
creditors and shall vest in the trustee in bankruptcy.

The order adjudging one bankrupt is also required to specify the period at the expiration
of which the debtor may apply to be discharged from the bankruptcy (TIB).
 The order of adjudication is in form No. 96

Discharge

 S29 BA provides that at the expiration of the time prescribed by the court in the
order of adjudication, the bankrupt is required to apply to the court for his
discharge. The court shall fix the date for the hearing of such an application but
such date must be after the PE has been concluded.

 In order to apply for his discharge, a debtor is required to produce to the registrar of
the High Court a certificate from the official receiver specifying the number of
creditors of whom the official receiver has notice. Once the day for hearing of the
application from discharge is given, the registrar of High Court is required to give
notice thereof to the official receiver and trustee. The notice must be at least 28
before the day of hearing. The registrar is also required to advertise the notice of
the hearing in the Kenya Gazette at least 14 days before the day of the hearing.

Distribution of debtor’s property

 Once a debtor is adjudges bankrupt his property vests in the trustee and is to be
divided amongst his creditors. However S38 BA prescribes rules which govern the
order of precedence of the debts:

 Taxes due to the Government and any rates. This only relate to those taxes and
rates accrued within 1 year before the RO was made.

 Any rents due to the government for the last 5 years.

 Wages or salaries of the bankrupts’ employees. This can only be claimed for a
maximum of 4 months before making of the RO.

 Compensation due to any of the bankrupt’s workmen

 Amounts required to be paid by the bankrupt to the NSSF for 12 months before
the making of the RO for the bankrupt’s employees.

 Note: the above debts rank equally between themselves and must be paid in full
unless the property of the bankrupt is insufficient to meet them in which case they
shall abate in equal proportions.

 After payment of the preferential claims the balance of the debtor’s property will be
utilized to discharge the other debts provable in bankruptcy. All such debts are
required to be paid in pari passu. If there is any surplus after payment of those
debts, it is applied to pay any interest from the date of the RO.
Bankruptcy officers

Official receiver

Appointed by the AG. Basically state counsel

- Assisted by officers called Deputy Official Receivers

- DUTIES (SS 76 and 77)

 Investigate the conduct of the debtor and report to the court. This will extend to
establishing whether the debtor has committed any act which is an offence under
the BA or which would justify the court in refusing, suspending or qualifying an
order of a debtor’s discharge.

 To make other reports concerning the conduct of the debtor as the court may direct.

 Participate in the PE of the debtor

 To assist in the prosecution of fraudulent debtors.

 Pending the appointment of a trustee to act as interim receiver of the debtor’s

estate and where a special manager is not appointed as manager thereof.

 To authorize the special manager to raise money or make advances for purposes of
the estate in any case where, in the interest of the creditors, it appears necessary to
do so.

 To summon and preside over the first management of creditors.

 To issue forms of proxy for use at the meetings of creditors;

 To report to the creditors as to any proposal which the debtor may have made with
respect to the mode of liquidating his affairs.

 To advertise the RO, the date of the first meeting of creditors and the debtor’s PE
and such other matters as it may be it may be necessary to advertise.

 To act as trustee during any vacancy in the office of trustee

 To furnish the debtor with instructions for the preparation of his statement of affairs

 Admitting proofs of debts.

Trustee in bankruptcy

The trustee in bankruptcy is appointed by the creditor’s or committee of inspection. The

creditors may appoint more than one person to be TIB

DUTIES

(a) Hold property of the debtor

(b) Make contracts on behalf of the debtor;

(c) Sue and be sued on behalf of the debtor

(d) Admission of proofs of debts

(e) Declare dividends

(f) Distribute the debtor’s property amongst his creditors.

Special manager

Appointed by creditors to manager estate of a debtor in complex situations

Is essentially answerable to official receiver and must always seek the authority of official
receiver if he takes any major decision in respect of the estate.