Law of Bankruptcy notes

Law of Bankruptcy

  • Meaning of bankruptcy
  • Procedure in bankruptcy proceedings
  • Rights and disqualifications of a bankrupty

Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt

Bankruptcy is a legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment.

Bankruptcy can allow you a fresh start, but it will stay on your credit reports for a number of years and make it difficult to borrow in the future.

Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that simply cannot be paid while giving creditors a chance to obtain some measure of repayment based on the individual’s or business’s assets available for liquidation. In theory, the ability to file for bankruptcy benefits the overall economy by allowing people and companies a second chance to gain access to credit and by providing creditors with a portion of debt repayment. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations

ACTS OF BANKRUPTCY

(1) A debtor commits an act of bankruptcy in each of the following cases—

  •  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;
  • If in Kenya or elsewhere he makes a fraudulent conveyance, gift, delivery or transfer of his property, or of any part thereof;
  • 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;
  • 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;
  • 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;
  • If he files in the court a declaration of his inability to pay his debts or presents a bankruptcy petition against himself; [Rev. 2012] CAP. 53 Bankruptcy B3 – 11 [Issue 1]
  • 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 counterclaim, 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;
  • 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. (2) In this Act, except where the context otherwise implies, “a debtor” includes any person, whether domiciled in Kenya or not, who at the time when any act of bankruptcy was done or suffered by him—
  1. Was personally present in Kenya; or
  2. Ordinarily resided or had a place of residence in Kenya; or
  3. Was carrying on business in Kenya personally or by means of an agent or manager; or
  4. Was a member of a firm or partnership which carried on business in Kenya, and for the purposes of Part IX includes a person against whom bankruptcy proceedings have been instituted in a reciprocating territory and who has property in Kenya..

BANKRUPTCY PROCEDURE

The Bankruptcy Commission has worked since its establishment to provide instructive materials in the form of guides, templates, and tools that aim to facilitate and clarify the regulations of the bankruptcy procedures.

The beneficiaries can understand the stages of every bankruptcy procedure by visiting the page of the main seven bankruptcy procedures.

Each procedure’s page contains a journey that illustrates the procedure’s steps and stages, as well as the stakeholders’ roles and responsibilities. The page contains a guide to the commencement of bankruptcy procedure and a card that illustrates the information and documents required while the commencement of the procedure.

The bankruptcy procedures aim to allow the bankrupt, distressed, or potentially distressed debtor to benefit from the bankruptcy procedures so that he or she can restructure his or her finances, and resume his/her business activities while protecting the creditors’ rights and maximizing the Bankruptcy Assets.

The Bankruptcy Law contains seven main procedures:​​

1.Protective Settlement ​Procedure ​

(Bankruptcy Law, chapter 3, Implementing Regulations, chapter 3)

A procedure that aims to facilitate reaching an agreement between the debtor and his/her creditors to settle the debts and allow the debtor to continue running his/her business.  ​​

  1. Financial Restructuring Procedure ​

 (Bankruptcy Law, chapter 4, Implementing Regulations, chapter 4)

A procedure that aims to facilitate reaching an agreement between the debtor and his/her creditors to financially restructure his/her business activity under the supervision of the financial restructuring officeholder. ​​​

  1. Liquidation Procedure​

(Bankruptcy Law, chapter 5, Implementing Regulations, chapter 5)

A procedure that aims to account for creditors’ claims, the sale of the Bankruptcy Assets, and the distribution of the sale proceeds to the creditors under the management of the liquidation officeholder.

  1. Administrative Liquidation Procedure ​​

(Bankruptcy Law, chapter 9, Implementing Regulations, chapter 9)

A procedure under the management of the Bankruptcy Commission, aiming to sell the bankruptcy assets which sale proceeds are not expected to cover the expenses of the liquidation procedure or the small debtors’ liquidation procedure.​​

  1. Small Debtors’ Protective Settlement Procedure ​

(Bankruptcy Law, chapter 6, Implementing Regulations, chapter 6)

A procedure that aims to facilitate reaching an agreement between the debtor and his/her creditors to settle the debts within a reasonable period and through low cost and highly efficient simple procedures while maintaining the debtor’s ability to manage his/her business.

  1. Small Debtors’ Financial Restructuring Procedure​

 (Bankruptcy Law, chapter 7, Implementing Regulations, chapter 7)

A procedure that aims to facilitate reaching an agreement between the small debtor and his creditors to financially restructure his business within a reasonable period and through simple measures with low cost and high efficiency under the officeholder’s supervision.

  1. Small Debtors’ Liquidation Procedure ​​

(Bankruptcy Law, chapter 8, Implementing Regulations, chapter 8)

​A procedure that aims to sell the Bankruptcy Assets and distribute the sale proceeds to the creditors within a reasonable period and through low cost and highly efficient simple procedures under the officeholder’s supervision.​​

 

RIGHTS OF BANKRUPTS

  1. Where a trustee objects to a discharge or sets a contribution payable, a bankrupt can write, enclosing appropriate documents, to have the matter reviewed. Decisions are reviewed by the Inspector General (if considered justified) or the Commonwealth Ombudsman. circumstances
  2. Only debts that are legally enforceable against the bankrupt can be proved in bankruptcy. For example, debts that are not enforceable under State laws (for example, statutebarred) are not provable debts and, where appropriate, that fact ought to be drawn to the trustee’s attention. Most debts become statute barred six years after the date of the last repayment or other acknowledgment of the debt by the debtor. After that time the lender loses the right to sue.
  3. Bankrupts are automatically discharged after three years and one day unless the trustee files an objection.
  4. The bankrupt, or his or her estate, has the right to continue any legal or court proceedings begun before the bankruptcy in relation to injury to, or death of the bankrupt, the bankrupt’s spouse or a member of the bankrupt’s family, or in relation to any compensation or damages received. Any property bought with, or substantially with, those funds is not divisible among the creditors.
  5. Bankruptcy operates automatically to stop legal or court proceedings (other than those in relation to injury) already begun by the bankrupt. The trustee’s permission is needed to begin or continue with any legal proceedings. The trustee must however, act reasonablyat all times and has a duty to consider whether the legal proceedings have merit. A trustee who believes that the action has merit, ‘steps into the bankrupt’s’ shoes and may start or continue the proceedings. This depends on the type of proceedings and advice should be sought from the trustee.
  6. A bankrupt is entitled to operate a savings bank account.
  7. A bankrupt has the right to travel freely throughout Australia, although the trustee must be notified of any change in name, address, or employment. This includes simply using a different name or an additional name
  8. A bankrupt can be the executorof a deceased estate and may even apply to be appointed the administrator of an estate if there is no will but in this situation may be required to pay a bond, see obtaining letters of administration. However, property inherited by an undischarged bankrupt will probably be taken by the trustee depending on the type of bequest.
  9. A bankrupt can request from their trustee information that they reasonably require concerning their property or affairs. The file will probably contain the trustee’s reports, copies of any relevant court transcripts, general correspondence and a list of proofs of debt lodged by creditors. Copies of all relevant documents are obtainable under the Freedom of Information Act 1982 although charges were recently introduced under that Act. It may now be preferable simply to seek permission to obtain specific information from the trustee’s file.

 

DISQUALIFICATION OF BANKRUPTCY

After being given a Bankruptcy Order, the bankrupt is disqualified from:

  1. Holding the office of a Member of Parliament/Member of State Legislative Assembly;
  2. Holding public office (subject to the decision of Government Disciplinary Board;
  3. Holding certain positions in statutory bodies, registered societies or organizations;
  4. Practicing in certain professions;
  5. Carrying on business alone or in partnership or by way of a company;
  6. Working in the business of a relative;
  7. Commencing or maintaining any court action without the sanction of DGI other than an action for damages in respect of an injury to his person;
  8. Leaving Malaysia without the permission of DGI or court;
  9. Any money or gratuity received by the bankrupt must be vested on DGI to be distributed to the creditors (subject to the discretion of the DGI); and
  10. Enforcing his rights under certain legislation



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