COMMERCIAL TRANSACTIONS

BANKRUPTCY:

It is the procedure by which the state takes property of a debtor and distributes it to its
creditors (the people the debtor owes money).

During bankruptcy the debtor obtains certain immunities in order to preserve his estate.

You have to genuinely be bankrupt. In court a public examination of the debtor is done.
The official receiver calls the creditors to question the debtor on his conduct.

WHAT CONSTITUTES BANKRUPTC Y

These are basically covered under Section 3(1) of the Bankruptcy Act. A debtor
commits an act of bankruptcy in each of the following cases:-

1. Conveying or assigning all property to a Trustee for the benefit of his

creditors generally; Section 3(1) (a) provides that if in Kenya or elsewhere a
debtor makes a conveyance or assignment of his property to a trustee or
trustees for the benefit of his creditors generally, he commits an act of
bankruptcy. To constitute an act of Bankruptcy hearing there must be a
conveyance or an assignment of the whole or substantially the whole of the
debtors property. Refer to Re Spackman (1890) 24 QBD 128. The
assignment must be for the benefit of all creditors generally and not just a
class. Refer to Re Meghji Nathoo (1960) E.A. 560 A creditor who has
recognized a Deed of Arrangement wherein a debtor has agreed on a plan of
repaying the debt cannot rely on that Deed as an act of bankruptcy. Refer to
Re A Debtor (1939) 2 All E.R. 338.

2. Fraudulent Conveyance provided for under Section 3(1)(b), this second act
of bankruptcy is that if a debtor makes a fraudulent conveyance, gift,
delivery or transfer of his property or any part thereof. Under the BA a
conveyance is fraudulent if it confers on one creditor an advantage which he
would not have under the Bankruptcy Laws or which tends to defeat or delay
creditors irrespective of whether the debtor had any dishonest intention
although this may be present. The transaction may be a conveyance, gift,
delivery or transfer of property and this includes mortgages or pledges as
well as actual conveyances and assignments. The conveyance need not be
for the benefit of any creditor and such transfers are frequently made for
example to a member of the debtors family. The conveyance need not be of
the whole of the debtors property.

The principles for determining whether a conveyance is fraudulent under

the Bankruptcy Act may be summarized as follows: -
 o Where a debtor transfers all or virtually all his assets in payment of an
antecedent debt without receiving any present return for them this
necessarily defeats or delays his other creditors and is a fraudulent
conveyance even when the transaction is honestly entered into;

o Where a debtor transfers all his assets for a full present consideration this is
not per se a fraudulent conveyance since the effect is merely to change the
nature of the property to which the creditor look for satisfaction but a
fraudulent intent for example to abscond with the proceeds of the sale could
be proved if it is in fact existed or it might shown that that so called sale was
a sham designed to turn a creditor from an unsecured into a secured creditor
at the expense of other creditors and in this latter case that will be fraudulent.

o Where a debtor transfers part of his assets in payment of an antecedent debt,

the fraudulent intent must be proved and this will depend upon whether or
not there is sufficient property remaining after the transfer to enable the
debtor to continue in business and thus satisfy his other creditors. Secondly
this will depend upon whether the debtor is insolvent or not at the time and
lastly it will depend upon whether or not the conveyance has the effect of
leaving him insolvent.

o Where a debtor mortgages or otherwise charges all his property to secure an

antecedent debt, this is conclusively presumed fraudulent as against the other
creditors.

3. FRAUDULENT PREFERENCE:

Section 3 (1) (c) of the BA as read with Section 49(1). If in Kenya or elsewhere he
makes any conveyance or transfer of his property or any part thereof or creates any
charge thereon which would under the BA or any other Act be void as a fraudulent
preference if you are adjudged bankrupt, this constitutes an act of Bankruptcy and
basically under Section 49(1) it is provided as follows:

Every conveyance or transfer of property or charge thereon made, every payment

made, every obligation incurred and every proceeding taken or suffered by any
person unable to pay his debts as they become due from his money in favour of any
creditor with a view of giving such creditor guarantor for the debt due to such a
creditor a preference over the other creditors is deemed to be fraudulent and is void
as against the trustee in bankruptcy if the person effecting the transaction is
adjudged bankrupt on a petition presented within 6 months after the date of the
transaction.

4. LEAVING KENYA, KEEPING HOUSE & SIMILAR ACTS

 BA Section 3(1) (d) is yet another act of bankruptcy. Here if a debtor departs from
Kenya or if out of Kenya remaining outside Kenya or departing from a dwelling
house or otherwise absenting himself or beginning to keep house is constituted as an
act of bankruptcy.

In order to establish this act of bankruptcy the creditor must prove that it was the
debtors intention to defeat or delay his creditors but it is not necessary to show that
any creditor was actually defeated. The intent may be presumed if it is a natural
consequence of the debtors act that the creditors will be defeated or delayed. Refer
to the case of Re Cohen (1950 2 All ER 36

This act of bankruptcy has 3 limbs

a. Departing from or remaining out of Kenya, where a person domiciled in Kenya

leaves the country after being pressed for payment by his creditors, there is a
strong presumption that his intention is to defeat creditors. However, this is not
so if he has a permanent residence abroad at which he remains or if a person
domiciled abroad leaves Kenya to return to the country of his domicile. Refer to
Ex parte Brandon (1884) 25 Ch. D 500;

b. The second limb of bankruptcy is departing from a dwelling house or otherwise

absenting himself. Here the absenting must be from the debtors place of
business or usual aboard or from one of more particular creditors elsewhere. It
is an act of bankruptcy under this head if a debtor having made an appointment
to meet a creditor at a particular place fails to attend to the appointment with
intent to defeat it. Refer to the case of Re Worsley (1901) K.B. 309 here where
a married woman left her place of business without paying her creditors or
notifying her change of address, this was held to be an act of bankruptcy
although she left at her husbands request to live with him elsewhere.

3rd Limb

c. Beginning to keep house _ a debtor keeps house if he refused to allow his

creditors to see him or retires to some remote part of his house or business
premises where they cannot gain access to him. It must be shown that some
creditor has been denied an interview in this way but the creditor must seek the
debtor at a reasonable hour.

5. LEVYING EXECUTION AGAINST GOODS

Section 3(1)(e) of the Bankruptcy Act, where a judgment against a debtor remains
unsatisfied, the judgment creditor will usually seek to enforce it by levying execution on
the debtors goods. This will constitute an act of bankruptcy available to any other
creditor if the goods are sold by the Bailiff or retained by them for 21 days excluding
the date of seizure. The petition founded on this act must be presented within 3 months
thereof. Refer to the case of Re Beeston (1899) 1 QB 626. The Bailiff is in possession
for the purpose of this section where under a walking possession agreement he
withdraws his officer upon the debtors acknowledging that the goods have been seized
and allows the debtor to continue normal trading in the goods provided that a limit is
imposed on the value of the goods which can be dealt with in this way by the debtor.
Refer to the case of Re Dalton (1963) Ch. 336.

EXECUTION AGAINST GOODS.

If a 3rd party makes a claim to any of the goods seized, the bailiff must take out an inter
pleader summons to determine the ownership of the goods. The period occupied in
dealing with these summons is not to be counted in the 21 days.

6. DECLARATION OF INABILITY TO PAY DEBTS

BA Section 3 (1) (f) as read with Bankruptcy Rules 98. Here a formal declaration by
the debtor that he is unable to pay his debts or a bankruptcy petition presented against
himself the latter being the most common constitutes an act of bankruptcy upon
delivery of the document to the proper official of the court. A declaration of inability to
pay debt is required to be in Form No. 2 of the Bankruptcy Rules while a debtors
petition is required to be in Form No. 3 of the Bankruptcy Rules.

7. BANKRUPTCY NOTICE

Section 4 as read with Section 3(1) g of the BA. Here if the debtor fails to comply with
the provisions of a bankruptcy notice, within 7 days, he commits an act of bankruptcy.
A bankruptcy notice is a notice issued by the court and served on the judgment debtor
calling upon the debtor to pay the amount of the judgment debt or else satisfy the court
that he has a counter-claim set-off or cross-demand which equals or exceeds the amount
of the judgment debt and which the debtor could not set up in the action in which the
judgment was obtained. A bankruptcy notice must be preceded by a request of issue of
the notice and this is in Form No. 4 of the Bankruptcy Rules.

A bankruptcy notice must be in the prescribed form and must state the consequences of
non-compliance. It can only be issued at the instance of a creditor who has obtained a
final judgment in a Kenyan court or foreign court where there is reciprocity. The
prescribed form of a bankruptcy notice is Form No. 5 under the Bankruptcy Rules. The
period of 7 days for compliance applies where the notice is served in Kenya. If served
abroad the court will fix the time for payment in order to give leave to serve it abroad.
The notice must require payment to be made in exact accordance with the terms of the
judgment. Therefore if by agreement with a creditor payment is to be made by
installments, a notice cannot issue on the failure to pay one installment for the whole of
the unpaid balance unless it was provided but the whole balance should become due on
failure to pay any installment. If a portion of the judgment debt has been paid, there not
being any agreement to take payment by installments, the bankruptcy notice must issue
for the balance unpaid and not for the whole depth.
But a bankruptcy notice will not be invalidated by reason only that the sums specified in
the notice as the amount due exceeds the amount actually due unless the debtor within
the time allowed for payment gives notice to the creditor that he disputes the validity of
the notice on the ground of such misstatement. If the debtor does not give such notice
he is deemed to have complied with the bankruptcy notice if within the time allowed he
takes such steps as would have constituted a compliance with the notice had the actual
amount due been correctly specified therein. It should be noted that two separate
judgment debts cannot be included in one notice.

A bankruptcy notice cannot be issued if execution on the judgment has been stayed.
The debtor after service of the notice may seek to have it set aside 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 on which the judgment was
obtained or for any other reasons. If the debtor does not successfully challenge the
notice and does not pay the debt or provide satisfactory security for it within the
specified time he commits an act of bankruptcy which is available not only to the
creditors issuing the notice but to any other creditor provided that he obtains an affidavit
of non-compliance from the creditor issuing the notice.

8. GIVING NOTICE TO CREDITORS OF SUSPENSION OR INTENTION

TO SUSPEND DEBTS.

Section 3(1) (h) BA.

Here a statement by a debtor that he has suspended or is about to suspend payment of

his debts needs no particular formality but the notice must be given in such a manner as
to show that his intention was to give information that he has suspended all those about
to receive payment. That will constitute an act of bankruptcy for example notice of
Suspension has been inferred where a trader summoned a meeting of his creditors with
a view to proposing a composition.

Refer to the ca se of Crook V. Morley [1891] A.C. 316. It has also been inferred where
a debtor made a verbal statement to the managing clerk of the solicitors acting on behalf
of his creditors that he was unable to pay his debts.

Re a debtor [1929] 1 Ch. 362. A notice given without prejudice has been held to be
admissible as proof of the acts of bankruptcy. In Re Daintrey [1893] 2 Q.B. 116.

BANKRUPTCY PROCEEDINGS

Bankruptcy proceedings can be initiated by a creditor or a debtor. Where proceedings

are initiated by the debtor a petition is sufficient. However where proceedings are
initiated by the creditor the procedure is different. As a creditor you will have to file
issuance of a bankruptcy notice. This is done by producing to the registrar a copy of the
judgment on which the order is founded.

The person upon whom a declaration of bankruptcy is being sought must reside in
Kenya or be within the jurisdiction of the court. You must explicitly state that there is
no stay on the judgment.

The Notice will request for immediate payment of the debt unless the debtor can
negotiate a settlement with the creditors. The Notice will also state the consequences of
failure to abide by the notice.

Under rule 102- It is mandatory of the bankruptcy notice to be served within one month.
The debtor can challenge the notice by a statutory form affidavit stating that the debt is
settled or by obtaining stay. See also Rule 101. Once it is filed the court sets the matter
for hearing. The court will look at the content of the notice, judgment and affidavit. If
the court is satisfied it will set aside the order.

After serving the notice, a bankruptcy petition is filed:

Bankruptcy petitions are in statutory form. See sections 6 of the Bankruptcy Act
i.e monetary threshold (it could have been amended by now).

It can only be founded (i.e the petition) on a liquidated debt.

Thirdly, the Act of bankruptcy should have been committed in the last three
months.

Fourthly a petition can only be filed against a debtor domiciled in Kenya. The
debtor must have been doing business in Kenya even if it is through an agent. If
the debtor has security he has to state it and enter give it up or given an estimate
of its value.

REQUIREMENT OF A BANKRUPTCY PETITION

o Clear description of address of debtor.

o Secondly, it must be attested by an advocate, justice of the peace, receiver or

registrar of the court. If attested outside Kenya, it might be done by a Judge or
notary public.
o At the time of filing the petitioner must deposit security for costs. It must be
deposited with the official receiver. File also an affidavit with the petition which
is signed by the creditor and one of its directors or partners.
o Once the petition is filed it must be served on the debtor personally or by
substituted service.

A debtor can file a response to a petition through challenging it and obtaining stay.
If the petition is not being challenged the creditor can apply to court for the appointment
of an official receiver, often a govt. agent as an interim receiver before making the final
receiving order.

Where a petition is filed by the debtor it is heard straight away and makes a receiving
order. A creditors petition can only be heard after 7 days. Even then if the petition is
unchallenged a receiving order cannot be made immediately.

A petition can be challenged by the debtor filing notice to show cause stating:

o The statement in the petition which he intends to dispute.

o The grounds on which he will dispute the statement. See Form 17.

If the debtor doesnt enter appearance, the case is heard ex-parte and a receiving order is
made. If the debtor enters appearance he is entitled to present witnesses on the ground
of his opposition.

Bankruptcy rules: if y0u dont appear the matter becomes res judicata and you cant file
on the same Act of Bankruptcy unless you obtain leave to do so.

HEARING OF THE PETITION

At the hearing of the petition, the petitioner must:

o Prove the debt

o Prove that an act of bankruptcy has been committed.

While the debtor, in defense, can aver that:

o He has paid the debt

o He is capable of paying the debt
o He might as well stay proceedings if he can show that the decree has been
stayed on the grounds that it is subject to appeal on application to set aside.

Once the petition is filed it cant be withdrawn just like that. One must apply for leave
to do so.

A receiving order is made once the petitioning debtor files his statement of affairs with
the official receiver.

Where a petition is presented by a creditor, the courts will fix the matter for hearing and
make a receiving order if satisfied that an act of bankruptcy has been committed.
A receiving order must state the date of the Act of Bankruptcy and contain a Notice
requiring the debtor to attend the official receiver forthwith on the service of the order
at the place named on it.

A receiving order on a debtors petition is in Form 26 while an order vide a creditors

petition is in form 27.

Once the order is made the registrar transmits it to the official receiver.

It is also the duty of the official receiver to advertise in the Kenya Gazzette and in the
Daily Press See Form 29 & 30. The advert must state:

i) The name of the debtor

ii) Residential Address
iii) Description
iv) Dates of making of the order
v) Court in which the order was made
vi) Date of Petition

See S.26 of the Bankruptcy Act.

Debtor challenging order- he can seek to rescind it on the basis that he has paid the debt
in full or that it isnt due at all. He must issue a 7 day notice to the official receiver.
Once the official receiver is served with the application to rescind he is required to fill a
report of the debtors conduct and affairs. The report is prima facie evidence of the
statement made in it. However the court is entitled to hear further evidence adduced by
any of the creditors.

CONSEQUENCES OF THE RECEVING ORDER

The official receiver becomes the receiver of the debtors property. At that time no
creditor to whom the debtor is indebted in respect of any debt provable in bankruptcy
can have a remedy against the person and property of the debtor as and against the debt.

In special cases the official receiver may allow the creditor to appoint a special manager
over the debtors business in place of the official receiver. This normally happens where
the nature of the estate is particularly complex.

PROCEEDING CONSEQUENT TO A RECEVING ORDER

o Meeting of Creditors

Once a receiving order is made there are several meetings held for the purpose of
considering whether a proposal of a scheme and arrangement or composition is
accepted or whether is expedient to declare the debtor bankrupt. These meetings are
also held to determine how best to deal with the debtors property. The statement of
affairs of the debtor is quite important. It shows the following:

i) Debtors Assets
ii) Debtors debts and liabilities
iii) Names, addresses and occupation of his creditors
iv) Securities held and the dates those securities were given by the creditors.

The statement is filed within three days before presentation of the debtors petition. In
case of a creditors statement the statement of affairs is filed within 14 days of making of
the receiving order. The Official Receiver may extend the days limit as long as good
reason. Creditors are allowed to view and assess the statement of claim and make
copies of the same.

If a debtor fails to file the statement of claim on a creditors petition he risks being
declared bankrupt and could even face penal consequences including contempt of court.
The statement of affairs must be verified by an affidavit. It is the responsibility of the
official receiver to instruct debtor on how to prepare the statement of affairs as provided
for under Form 31. Once the debtor receives the form he is supposed to fill it in
duplicate and send the same back to the official receiver.

The first meeting of creditors is summoned by the official receiver within 60 days of
making of the receiving order. The Notice calling for the meeting is required to be
accompanied by summons of debtors statement of affairs. The Notice must indicate the
time and place of the meeting. Other meetings can be called if necessary. The official
receiver is chairman of the 1st meeting later meetings of creditors can be used to appoint
the Chairman. It is only creditors who have proved theirs debts by filing the proof of
debt who can vote. A creditor can vote by proxy- he must complete and return to the
receiver the requisite forms. There are two types of proxies:

i) Special Proxy
ii) General Proxy

General Proxy allows a proxy to do on behalf of creditors all things in the proceedings.
See Form 59.

Special Proxy- Only those specified in it can be done Form 60.

Quoram of meetings of creditors must be 3 unless their number is less than 3. So for
example if there are 9 creditors there must be at least 3 at the meeting.

If meeting is late by half an hour without a quoram it must be called off and it must be
recalled within 3 days and in any case within 21 days. The minutes must be recorded.
PROOF OF DEBT

Once a receiving order is made creditors must take steps to prove their debts as soon as
possible. This is done by delivering or sending by post to receiver or trustee an affidavit
verifying the debt. The affidavit may be signed by the debtor or the authorized agent. It
must fulfill the following:

o It must refer to the statement of account showing particulars of the debt

o It should specify vouchers by which the statement can be substantiated.
o Where there are vouchers a creditor must be ready to produce them to the
receiver or trustee
o The affidavit should state whether you are a secured creditor or not otherwise
you stand the chance of loosing your security altogether.

Proof of Debt Forms are available for viewing to all creditors. A secured creditor can
only proof for the balance on the secured debt. Where a creditor seeks to prove the
whole amount of the debt he must surrender the security to the Official Receiver or
Trustee. If a secured creditor has not surrendered the security, he shall, before ranking
for dividends state in his proof the particulars, value and date such security was given. It
is only after he has done this that he can receive dividend, the balance due to him after
assessing the value due on the security.

It is the duty of the official receiver to admit or reject debts after perusing the affidavit
and examining every debt- if he finds no sufficient basis he may reject it. However the
Official Receivers decision may be appealed by creditors through making an
application to court for a review.

PUBLIC EXAMINATION OF DEBTOR

Once a receiving order is made the official receiver should apply to court for public
examination of the debtor. This can only be done after the debtor has supported the
statement of affairs. The purpose of this public examination is to see into the debtors
affairs conduct, dealings and property. A creditor can only participate in such public
examination if he has filed a proof of debt form. The creditors will normally question
the debtor on his affairs/dealings and cause of failure. The Official Receiver or Trustee
and court can question the debtor as well. Examination takes the following format:

Notes of examination are taken in writing and the debtor is allowed to read and sign
court proceedings. He is examined under oath.

A debtor who fails to attend Public Examination can be arrested. The official receiver
serves the order of P.E to debtor and also to notify creditors. The notice should be
published in the Gazette and the Dailies.

The court may dispense with Public Examination if the Debtor is incapacitated,
mentally unfit or has a disability which cannot allow him to appear for examination.
The debtor can otherwise choose to be examined in another place other than the usual
one.

The debtors advocate is allowed to be present but is not allowed to speak.

COMPOSITION OR SCHEME OF ARRANGEMENT

Once a receiving order has been made and the debtor intends to make a proposal of
composition or scheme of arrangement he is required to lodge with the official receiver
a written proposal setting out the conditions of his proposal or scheme to be considered
by his creditors.

The composition or scheme of arrangement must be lodge within 4 days of the

submission of the statement of affairs.

The debtor must sign a composition/scheme and set out in it particulars of any security
or sureties.

Where there is a proposal the official receiver is required to call a meeting of creditors
before conclusion of public examination so that they can decide whether to accept a
proposal or not.

For a proposal for composition see Form 74 and that for a scheme see Form 75. Once
the official receiver the proposal he is required to prepare a report on it and that report
has a voting letter in the form of Form 76.

The official receiver then sends the report to creditors together with the debtors
proposal.

Creditors on the voting letter can signify in the voting letter their rejection and then
return it to the official receiver at least a day before the meeting. One could also fail to
sign the letter and then attend meeting and vote whether to accept or reject the proposal.
For a proposal to pass it must gain a majority vote whose value must be of all
creditors who have proved. If this happens its deemed as accepted by all creditors and
becomes binding on all of them once it is approved by the court.

Once proposal has been accepted the official receiver or debtor can apply to court to
have it approved. Notice of the hearing of the application must be given to all parties
concerned.

Once application is made the official receiver should file his report in court about 4
days before the hearing. At the hearing the creditor may still oppose the proposal if new
facts emerged after the courts approval.

The courts decision on application for approval should be gazetted.

CONSEQUENCE OF APPROVAL OF SCHEME BY COURT.

The official receiver is expected, after paying all costs to put the debtor back in
possession of his property. The debtor may opt to appoint a trustee or agent to take
possession of his property on his behalf. The concomitant consequence is that the
receiving order is discharged.

Any creditor can oppose any approval even if he had voted in favor of it at the meeting
of creditors. In deciding whether or not to approve the proposal the court will consider
all the facts.

A composition or scheme operates as a contract between debtors and creditors and any
party may apply to court to enforce it.

If a debtor defaults on the proposal he risks being adjudged bankrupt and the scheme
arrangement annulled. Where the proposal is annulled the debtors property will again
rest with the official receiver.

ADJUDICATION OF BANKRUPTCY

A debtor can only be adjudged bankrupt after receiving order is made and the
adjudication of bankruptcy will be made in the following cases.

i) Where debtor applies to be adjudged bankrupt. This can be done at the time
of making the receiving order or anytime thereafter. The application need
not be formal (theres no legal requirement of notice), the application can
even be made orally in court.
ii) Secondly, one will be adjudged bankrupt when he doesnt attend the 2nd
meeting and subsequent meeting of creditors.
iii) Where the debtor absconds he will be adjudged bankrupt.
iv) Where the debtor fails to make any proposal to his creditors
v) Where the creditor refuses to accept a composition of scheme at their
meeting.
vi) Where the public examination of the debtor is adjudged sine die
(indefinitely). Here the court may adjudge the debtor bankrupt without
notifying him as the debtor fails to cooperate by disclosing his affairs by not
attending public examination or even by not complying with any order of the
court in relation to his account, dealings and property.
vii) Where creditors resolve at their meeting to have the debtor adjudged
bankrupt or where they fail to pass any resolution.
viii) If a composition of scheme isnt approved within 14 days of the conclusion
of the public examination.
ix) If the debtor with the concurrence of the official receiver consents in writing
to be adjudged bankrupt.
Upon adjudication the property of the debtor becomes divisible among creditors and is
vested upon the trustee in bankruptcy. The order adjudging a person bankrupt should
state the period after which the debtor may apply for his discharge.

The order of adjudication is under Form 96. The Notice for adjudication of bankruptcy
is published in the Kenya Gazette by the official receiver.

The trustee in bankruptcy is appointed by creditors by an ordinary resolution or by a

committee of inspection. If the person appointed trustee is a person other than an
official receiver he is supposed to give security to court before appointment. His
appointment is official upon receiving a certificate of appointment from a court

The committee of inspection is appointed by creditors and consists of not more than five
people and not less than three who must be creditors of their agent. Its an agency of the
creditor to help deal with day to day administration of the debtors estate. It meets at
least once a month. Even after adjudication they may accept a scheme of arrangement if
the decision is approved by court the bankruptcy is annulled and the debtors property
will revert to him from the trustee.

A debtor who fails to match up with the scheme or composition will be adjudged
bankrupt.

DISCHARGE

At the expiration of the time prescribed by the court in the adjudication order the
bankrupt is expected to apply to court for discharge. The court will fix a date but the
date should be after the conclusion of the Public Examination.

In order to apply for discharge the debtor produces to the registrar a certificate from the
official receiver stating the number of creditors that the official receiver has notice, that
is,
i) creditors who have proved,
ii) those not proved but who the official receiver has notice and
iii) those who have had their claim rejected by the official receiver and have
appealed.

Once the day of the hearing of the discharge is given, the registrar is required to notify
the official receiver and trustee. The Notice must be given at least 28n days before the
date of the hearing.

The registrar is required to advertise the hearing 14 days in advance. It is the

responsibility of the official receiver to notify creditors at least 14 days in advance. The
Official receiver also files his report of the debtors conduct 7 days before the hearing.
If a creditor wishes to challenge the discharge he must file a notice of objection which
sets out the grounds upon which he challenges. It must be served 2 days before the
hearing.

In dealing with an application for discharge, courts may make the orders of discharge
but impose certain conditions on the debtor e.g.

i) In case where theres a balance of the debts provable in bankruptcy at the

time of the discharge the court may grant a discharge if the debtor gives
consent for judgment to be entered against him by the official receiver for
the balance. See form 108.
ii) The courts may also grant a conditional discharge requiring the debtor to
surrender a portion of future earnings or after acquired property. E.g. if
theres a balance after discharge e.g. 3 million the court can grant him
discharge if he agrees to curve off future earnings to the official receiver.
See Form 107.

An order for discharge must be gazetted, however this can only be done after the
appealing time has elapsed.

DISTRIBUTION OF A DEBTORS PROPERTY

Once a debtor is adjudged bankrupt his property vests in the trustee in bankruptcy to be
divided among creditors.

Certain debts rank in priority to the general ones. In summary the following debts must
be paid in priority

(i) Taxes due to the government to the government and any rates. These will
relate to those that have accrued within one year before the receiving order is
made.
(ii) Any rents due to the government for the last five years before the receiving
order is made
(iii) Wages or salaries of the bankrupts employees to be claimed for a maximum
of 4 months before making of the receiving order.
(iv) Any monies due to the bankrupts workmen.
(v) Amounts required to be paid by the bankrupt to the NSSF 12 months before
making of the receiving order for the bankrupts employees

These debts rank equally and must be paid out in full unless the bankrupts property is
insufficient to meet them.

After payment of the preferential claims the balance of the debtors property will be
used to pay the other debts provable in bankruptcy. The debts are to be paid in pari
passu (equally). If there is any surplus it is used to pay any interest from the date of the
receiving order. If there is any more balance it is paid to the debtor.

Only that property belonging to the debtor is divisible among creditors. Any property
held by the debtor on trust cannot be distributed among creditors. The law also exempts
debtors tools of trade and unnecessary apparel for himself and his immediate family
members.

All other property belonging to the debtor or rested in him as the commencement of
bankruptcy or acquired and devolved in him before discharge will be subject to
distribution among his creditors.

The trustee is expected, after retaining such sums necessary to cover the costs of
administration to distribute dividends among creditors who have proved their debts. The
bankrupt receives surplus after payment in full of creditors.

Before declaring dividends, a trustee gives 2 months notice of his intention to do so to

creditors mentioned in the statement of affairs that havent proved their debts. The
notice must specify the latest date by which all debts must be proved.

All debts admitted by the official receiver must be provided for. Rejected debts are
subject to:
When a creditor has appealed against the official receivers decision to reject is
proof that creditors debt must be provided for until the appeal is concluded. If
the appeal succeeds the creditor will be paid dividend due. If he fails no
dividend will be due.
If a creditor has his debts rejected and he doesnt appeal his debt wont be
provided for in the process of declaring dividends.
If a creditor has his debts rejected and he doesnt appeal his debts wont be
provided for in the process of declaring dividends.

BANKRUPTCY OFFICERS
Official Receiver
Trustee in Bankruptcy
Special Manager

The official receiver is appointed by the Attorney General (Hes actually a State
Counsel) and is assisted by a deputy official receiver. The deputies have equal authority
as that vested in the official receiver.

Duties Include:

Investigating debtors conduct and reporting to the court.

 Extends to establish whether the debtor has committed an offence under the
bankruptcy Act which will render the court to disqualify a discharge.
Public examination of debtor
Assist in prosecution of fraudulent debtors
Pending the appointment of trustee to act as interim receiver and where a special
manager isnt appointed to act as one.
To authorize special manager to make advances/raise money for the purpose 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 1st meeting of creditors.
To issue forms of proxy for the use at the meeting of creditors
To report to creditors of the debtor proposal with respect of liquidating his
affairs
To advertise the receiving order, the debtors of the 1st meeting of creditors and
the public examination and other matters.
To act as trustee during vacancy in the trustees office.
To admit proofs of debt.
To furnish the debtor with instructions for preparation of statement of affairs.

TRUSTEE

There may be more than one.

Hold the property of the debtor
To make contracts on behalf of he debtor
To sue and be sued on the debtors behalf once adjudication is done u cant sue a
debtor in his own name.
Admission of proof of debts.
Declaring dividends
Distribute debtors property among his creditors.

SPECIAL MANAGER

To manage the estate of the debtor during administration of bankruptcy and where he
wants to take important action he must take authority from the official receiver.

http://thinkexist.com/quotations/law_and_lawyers/
http://www.wisdomquotes.com/cat_lawyers.html

wowquote.com/law_quote.phtml
www.just-quotes.com/lawyers_quotes.html