Research And Describe Law Regarding Status Of Bankrupts In Kenya (Research Paper Sample)

Basically any person capable of entering into a contract may be adjudged bankrupt. The law of Bankruptcy applies to the following categories;
1 Aliens and Persons domiciled abroad;
These are subjected to bankruptcy proceedings as per Section 6(1) of the Act that is consideration is made that; if within a year before the date of presentation of the petition the debtor ordinarily resides or had a dwelling place or business entity, or carried out business by means of partners or agent.
2 Infants;
Infants generally are not capable of incurring debts or contracting with exception being made to contracts for necessaries. However if an infant fraudulently contracts a debt during his infancy, he will be liable for the debt and the creditor may claim bankruptcy on his acquiring the majority age. This is per the Relief Acts of England 1874 which is a General statute of application in Kenya.
3 Insane Persons;
As a general rule persons of unsound mind cannot be adjudicated bankrupt without the Court’s consent. However they can be subject to bankruptcy proceedings as stipulated under the Bankruptcy rules if they committed the act of bankruptcies in their lucid moments.[Bankruptcy Rules Rule 247.]
4 Married Women;
In accordance with Section 117 of the Bankruptcy Act, every married women may be subject to the law relating Bankruptcy as if she were “feme sole” that is as if she were single or unmarried. This implies that the Bankruptcy law has accorded women equal status in commercial transactions such that one will be held liable for one’s debt individually the law has progressed from the days of inequality to equality where women are given capacity
5 Companies/ Corporations;
Bankruptcy proceedings under the Bankruptcy Act are not applicable to companies/ corporations since this is dealt with liquidation and winding up provisions under the Companies Act, Chapter 486, Laws of Kenya. This also means that bankruptcy is mainly in regard to individuals; a company cannot be bankrupt but can be insolvent. Further as stipulated under Section 118 of the Bankruptcy Act ‘a receiving order shall not be made against any corporation or against any association or company registered under the Companies Act.
6 Partnerships;
Generally partnerships are subject to Bankruptcy laws regardless of their being general partnerships or limited partnerships, notably this is subject to any provisions or modifications that may be stipulated as per the Bankruptcy rules. Additionally section 122 of the Act accords equal treatment to limited partnerships as if they were ordinary partnerships and all partners are generally liable. Upon being adjudged bankrupt the assets of a limited liability partnership shall vest in a trustee.[Supra no1, section 119.]
7 Deceased persons;
The estate of the deceases can be administered in accordance with bankruptcy rules that will enable the proceedings to be commenced as though the debtor were not deceased. A petition may be presented upon one’s death by the personal representative to obtain an administrative order.
1 ACTS OF BANKRUPTCY
The committal of act(s) of bankruptcy is what gives a creditor the locus standi to lodge a bankruptcy petition against the debtor. What amounts to an act of bankruptcy is provided for under Section 3(1) that illustrates circumstances in which a debtor commits an act of bankruptcy. The Acts include: First, 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. This implies that shifting the burden of payment to the trustee as a receiver may have no control over the discharge of the debt. Secondly only creditors identified by the trustee may benefit therefore unidentified creditors whose payment may be excluded may bring this action illustrated in Re Spackman, the court held that the assignment must be for the benefit of all creditors generally and not just a class.[(1890) 24 QBD 128]
Second, if in Kenya or elsewhere he makes a fraudulent conveyance, gift, delivery or transfer of his property, or of any part thereof. A conveyance is fraudulent if it confers on one creditor an advantage he would not have had under the bankruptcy laws which tends to defeat or delay creditors irrespective of whether the debtor had a dishonest intention, the conveyance need not be for the benefit any creditor or be part of the whole of the debtor’s property.
Third, if in Kenya or elsewhere he makes any conveyance or transfer of property, or part thereof, or creates any charge thereon, this would be considered void as a fraudulent preference if he were adjudged bankrupt. Under section 49 of the Act every conveyance, transfer of property or charge or any proceedings suffered by one who is unable to pay his debt as it becomes due from his money in favour of any creditor with a view of giving such a creditor guarantor for the debt due to such a creditor creating a preference over other creditors will be void.
Fourth, if he intends to defeat or delay his creditors he; departs out of Kenya, being out of Kenya remains out of Kenya, or departs from his dwelling –house, or absents himself, begins to keep house which implies hiding from one’s creditors to evade payment one’s debt. In order to establish the act of bankruptcy the creditor ought to prove that the debtor had an intention to defeat or delay the discharge of the debt to the creditors. The intent could be presumed if the debtor acts in a manner that will delay or defeat the benefit of the creditors as illustrated in Re Cohen[(1950) 2 All ER 36]
Fifth, if execution against him has been issued by seizure of his goods in any civil proceeding in court, and these goods have either been sold or held by a bailiff for twenty(21) days. This constitutes an act of bankruptcy if the goods are sold by the Bailiff or returned by them for 21 days including the day of seizure.
Sixth, if he files in court a declaration of his inability to pay his debts or presents a bankruptcy petition against him. As under Rules 98, a formal declaration by the debtor that he is unable to pay his debts constitutes an act of bankruptcy upon delivery of the document to the proper official of court, a declaration of inability to pay debt is required to be in Form No, 2 of the Bankruptcy Rules while a debtor’s petition is required to be in Form No.3 of the Rules.
Seven, if a creditor has obtained a final decree or final order against him for any amount and execution therein not having been stayed, has served on him in Kenya by leave of court a bankruptcy notice in accordance with the Bankruptcy Act does not within seven (7) days of notice comply with the requirements of the notice or satisfy the court that he has a counterclaim or setoff or cross demand.[Hanif Kassamali Hirji & Another V PBM Nominees Limited [2014]eKLR]
Eighth, if he gives notice to any of his creditors that he has suspended, or that he is about to suspend payment of his debts. The case of Crook V Morleyillustrates that where a debtor made a verbal statement to the managing clerk of the solicitors acting on behalf of the creditors that he was unable to pay his debts, a presumption that he had a view to propose a composition to have a scheme of arrangement.[[1891] A.C 316]
2 PROCEDURE OF ADJUDICATION IN BANKRUPTCY
1 BANKRUPTCY NOTICE
This Notice is issued by the High Court before a creditor files a petition in court against the debtor. It must be served on the debtor and it requires the debtor to pay the amount of the judgment debt. Alternatively, the Notice may require the debtor to provide a satisfactory security of the debt within a specified period. In Kipkalia Kiprono Kones V Diamond Trust Bank Kenya Limited the High Court upheld a preliminary objection raised by the debtor that act of bankruptcy was invalid for the petitioner had not the Bankruptcy Notice and filed the petition within 3 months as stipulated in the Act. As per section 4 of the Act, a bankruptcy notice must be in the prescribed form and must state the consequences of non-compliance. The prescribed form of the notice is Form No. 5 under the Bankruptcy rules. The notice requires the debtor to pay the debt within seven day if the notice is served within Kenya. A debtor who fails to comply with the bankruptcy notice commits an act of bankruptcy.[Section 4 of the Bankruptcy Act, CAP 53, Laws of Kenya] [[2006] eKLR] [Section 3(1)(g) of the Bankruptcy Act, CAP 53, Laws of Kenya]
3 COMMENCEMENT OF BANKRUPTCY PROCEEDINGS
Bankruptcy proceedings are commenced by way of a bankruptcy petition to the High Court by the debtor himself or a creditor. The main object of the petition is to request the court to make a receiving for the protection of the debtor’s estate. Once a petition has been has been presented, it cannot be withdrawn without leave of court.[Sections 7(7) and 8(2) of the Bankruptcy Act, CAP 53, Laws of Kenya]
2 DEBTOR’S PETITION
A debtor can take out a petition alleging that he is unable to pay his debts. The presentation thereof constitutes an act of bankruptcy. As per rule 106, the debtor must insert in the petition his name, description and address. Further, the petition must be attested to in accordance with rule 107. A statement of affairs must be filed with the petition. Under s.16 the debtor must prepare and submit to the official receiver a statement of affairs not more than 3 days before the date presenting the petition. The statement of affairs must be made in the prescribed form and verified by an affidavit. It must show the particulars of the debtor’s assets; the names, residences and occupation of his creditors and the securities held by them; and the dates when the securities were given. The court will not grant a receiving order if the debtor fails to submi...