CATHOLIC UNIVERSITY OF EASTERN AFRICA

FACULTY OF LAW

CLS 210: BANKRUPTCY AND COMMERCIAL

SECURITIES.

“The Role of the Official Receiver and Trustee and how they are held accountable

in Bankruptcy proceedings under the Bankruptcy Act Cap 52.”

INTRODUCTION

The office of official receiver was established by the Bankruptcy Act 1883 (46 & 47 Vict c 52) of the

United Kingdom and imported just as it was into Kenya. Therefore the same provisions as in the UK

apply in Kenya.

Generally in the UK, any debtor may, in certain circumstances which are defined in the Act, be

made bankrupt. Any court having jurisdiction in bankruptcy cases in the district in which a

debtor resides or carries on business may make a receiving order against him, either on his own

petition, or on that of creditors whose claim is of a certain amount, and the "acts of bankruptcy"

on which the petition is to be founded are defined in the Bankruptcy Act. As soon as a receiving

order is made, an official receiver is placed in charge of the debtor's property, and the debtor

must submit a statement of his affairs to the official receiver. A meeting of creditors is then

summoned by the official receiver to decide whether the court should be asked to adjudge the

debtor bankrupt. Bankrupt estates are administered by trustees appointed by a majority in value

of the creditors.1

The trustee as according to the Bankruptcy Act cap 52, Laws of Kenya is defined as, ‘the trustee

in bankruptcy of a debtor’s assets. This basically means that the trustee is the one who will

administer the affairs of a bankrupt individual. He or she is to act on behalf of the debtor to

ensure that both the creditor's and debtor's interests are maintained in accordance with the rule of

law.2

1
Long Tail [2008] The History of Bankruptcy [online] http://hubpages.com/hub/history-of-bankruptcy

2
Investors Words, trustee in bankruptcy [online] http://www.investorwords.com/5087/trustee_in_bankruptcy.html
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This paper seeks to analyze the different duties of the Official Receiver and Trustee in

bankruptcy and also look at how they are held accountable for their performance.

OFFICIAL RECEIVER

The duties of the official receiver are defined and set out in the Bankruptcy Act3 as from section

75 – 77 and also in the bankruptcy rules as well as in other sections in the Act. The official

receiver is an officer of the court who is appointed by the court after the making of the receiving

order. As the holder of a statutory office, he has standing to bring proceedings and has a right of

audience before the court to which he or she is attached. He sues and is sued not in his personal

name but as "the official receiver".

The official receiver takes charge of the bankrupt’s property and handles the bankruptcy. The

bankrupt is in essence required and expected to co-operate with the official receiver or his

deputies in every way possible. After the receiving order or the adjudication order, creditors are

required to deal only through the official receiver. This does help the debtor as it relieves him

from harassment from any of the creditors, therefore the role of the official receiver can be seen

to be beneficial to the debtor, as it protects him/her.

The official receiver's role can be seen as being twofold. Firstly, it is to calculate and assess how

much assets does the debtor have available for distribution among creditors. Secondly, it is to

assist the bankrupt to obtain a discharge. Other duties include investigating bankrupts conduct.4

The Bankruptcy Act categorizes the official receiver’s duties in under two headings which are:

3
Cap 52 Laws of Kenya
4
Judicial, Bankruptcy, [online] http://www.judicial.gov.bn/serv_bankrupt.htm
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 • Duties as according to the debtor’s conduct(s.76);

• Duties as according to the debtor’s assets (s.77).

The official receiver is required to investigate the conduct and affairs of the debtor through the

assessment of his statement of affairs; by holding interviews with him/her/ liaising with the

bankruptcy trustee; and by using other investigative means that are necessary and within their

power. The investigation is an important part of the bankruptcy process and is taken extremely

seriously by the official receiver, which is due to the duties and obligations placed upon him by

law.5

The official receiver having been appointed by the court is therefore by implication and also by

express provision accountable to the court. Section 76 (a) provides:

“to investigate the conduct of the debtor and to report to the court, stating whether there is

reason to believe that the debtor has committed any act which constitutes an offence under this

Act or which would justify the court in refusing, suspending or qualifying an order for his

discharge;”

This goes to show that the court administers bankruptcy proceedings primarily through the

official receiver; therefore the official receiver is accountable as according to his powers and

duties to the court.

5
One Stop money, Who is the Official Receiver? [online]
http://1stopmoney.com/who_is_the_Official_receiver.html

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In the case of Paul Joesph Ngei v Official Receiver6, it demonstrated the way in which the

courts have control over the actions of the official receiver. In this case the official receiver had

refused to issue a certificate. The court held that the official receiver should prepare the required

certificate as according to rule 186 of the bankruptcy Act.

During the bankruptcy proceedings, various activities between the creditors and the debtor take

place, for example: the first meeting of creditors, handing in of the statement of affairs,

composition or scheme of arrangements and the public examination. Within these activities, the

official receiver plays a very dominant role.

In the first meeting of creditors, the official receiver is the one who summons the meeting and

gives notice to the creditors and the debtor. The purpose of the meeting of the creditors is to

consider 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.7 Looking at the purpose of the first meeting it clearly also

expresses the role of the official receiver. Furthermore in such meetings the official receiver shall

be the chairman of the 1st meeting and his work is to ensure that the creditors understand the

implications of the meeting and also the implications of their votes. Acting as chairman the

official receiver can also approve or reject a proof given in by the creditors for the purpose of

voting. Everything that goes on within the meeting must all be in writing in the form of minutes

and submitted to the court; and it is in this manner that the court is able to supervise the work of

the official receiver. Also in the first meeting of creditors it is important to note that even where

the official receiver has rejected a proof from a creditor, this is indeed subject to appeal to the

6
[1992] eKLR, Bankruptcy Cause 14 of 1988
7
Section 14, Bankruptcy Act, Cap 52 Laws of Kenya
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court8; again the court is seen to exercise control over the official receiver by giving the creditors

an opportunity to present themselves to the court in such instances.

An important way in which the official receiver’s duties and powers are checked is by way of the

imposition of time limits and deadlines which the official receiver is to meet. For example in the

case of handing in of the statement of affairs, in a debtor’s petition it is to be submitted to the

official receiver before, but not more than three days before, the date of the presentation of the

debtor’s petition.9 Such a provision also affects the official receiver in that he must ensure that he

has received the statement of affairs from the debtor when it is due. Even after the debtor submits

the statement of affairs to the official receiver, the official receiver further submits it to the court.

In the composition of agreements the official receiver takes place by being the one who first

signs the proposal from the debtor to the creditors for a composition of agreements. It is

important to note that the composition of agreements is held upon the request of the debtor and

not the official receiver. This composition must be accepted by the creditors and approved by the

courts. Upon acceptance, approval of the court as according to section 18 (8), the court relies on

the official receiver’s report. Therefore, showing the importance of the official receiver in

bankruptcy proceedings, and also the extent as to which he exercises powers appointed to him by

the law.

It is provided in some situations that the official receiver may act as a trustee in bankruptcy. This

is subject to the fact that the creditors can oppose and appoint someone else to act as the trustee.10

Bankruptcy Rules 260 provides that:

8
First Schedule Bankruptcy Act, Cap 52 Laws of Kenya
9
Section 16 (1) Bankruptcy Act, Cap 52 Laws of Kenya
10
Part IV of the Bankruptcy Rules 120
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“The court may, by general or special directions, determine what acts or duties shall be

performed by the receiver in person, and in what cases he may discharge his functions through

the agency of his clerks or other persons in his regular employ or under his official control.”

This has a great impact on the manner in which the official receiver performs his/her duties. It

shows that the official cannot out of his own discretion delegate any of his responsibilities to just

anyone. He is required to act in person unless provided for otherwise as the section above states.

This indeed is a way in which the official receiver is held accountable for his duties.

TRUSTEE

The trustee in bankruptcy proceedings is appointed by either the creditors or the committee of

inspection, as provided in section 80.11

The main function of the trustee is to realize and distribute the assets of the bankrupts’ estate.

The trustee has a duty to the creditors to dispose of the assets of the estate for the best possible

price. The aim is to enable the creditors to receive as large a share of the assets as possible after

the fees, costs and expenses of the bankruptcy have been paid.

A trustee in bankruptcy could be the official receiver. One who is not the official receiver is

accountable to the official receiver. The bankruptcy trustee has a number of investigative and

administrative powers so that the assets of the debtor and the bankruptcy can be dealt with

effectively.

According to section 75 (4)12, it states that:

11
Bankruptcy Act, Cap 52, Laws of Kenya
12
Bankruptcy Act, Cap 52, Laws of Kenya
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“The trustee shall supply the official receiver with such information, and give him such access to

and facilities for inspecting the bankrupt’s books and documents, and generally shall give him

such aid, as may be requisite for enabling the official receiver to perform his duties under this

Act.”

This shows that the trustee’s functions play a vital and important role in the role of the official

receiver, as the official receiver relies on the reports and information tendered by the trustee.

The trustee is given directions by either the creditors at any general meeting or by the committee

of inspection. In the event that there is conflict between the two, the creditors have the upper

hand (s.81 (1)).

A trustee’s decision can be challenged by the court who can either decide to reverse, confirm or

modify the act. The official receiver may also apply to the court for an examination of the

trustee; therefore, the trustee’s actions are closely watched by not only the official receiver, but

also by the court, and even further by the creditors.

The law keeps a very close check on the trustee especially as he is handling very sensitive issues

in the bankruptcy proceedings, which is the bankrupt’s assets. This is achieved through ensuring

that the trustee gives a statement to the official receiver not less than once every year (s.89 (1)),

for accountability purposes. Furthermore, the trustee must:

“…account for any misfeasance, neglect or omission which may appear on the statements or in

his accounts or otherwise, and may require the trustee to make good any loss which the estate of

the bankrupt may have sustained by the misfeasance, neglect or omission.”13

A debtor may also challenge the performance and/ or decisions of the trustee in bankruptcy by

applying to the court.

13
Section 89 (1) Bankruptcy Act, Cap 52, Laws of Kenya.
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Apart from the Official Receiver and the court holding the trustee accountable for his actions,

there is the committee of inspection which is provided for in section 22(1) which states that:

“ The creditors qualified to vote may, at their first or any subsequent meeting, by resolution,

appoint a committee of inspection for the purpose of superintending the administration of the

bankrupt’s property by the trustee:”

The creditors are allowed to closely examine the trustee’s conduct when handling the bankrupt’s

property and this benefits them. This committee also benefits the debtor as it assures him of the

supervision and equal distribution of his property which eventually leads to release from his debt

and a new start for him.

It is important to note that a committee of inspection appointed to supervise the work of the

trustee will not exist if the official receiver has been appointed as trustee unless he consents to its

appointment. The reason for this is that the official receiver is already held accountable to the

court and through the court also accountable to the creditors; therefore this defeats the purpose

for the committee of inspection.

DIFFERENCE BETWEEN TRUSTEE AND OFFICIAL RECEIVER

The Official Receiver is responsible for protecting the estate of the debtor and investigating the

affairs and also examining the conduct of the debtor.14

A trustee is in on the other hand responsible for taking possession of assets, selling them and

distributing the proceeds to the creditors pari passu.

An official receiver may sometimes act as a trustee.

14
One Stop money, Who is the Official Receiver? [online]
http://1stopmoney.com/who_is_the_Official_receiver.html
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QUESTION:

Why is it that the application for approval of the composition or scheme of arrangements

shall not be heard until the conclusion of the public examination?

It is important to note that the proposal of the composition of agreements is done by the debtor

and it is done with the aim of trying to get the creditors to agree to some sort of arrangement as

to payment of the debt.

The purpose of the public examination on the other hand is to examine the conduct, dealings and

the property of the debtor. This process is more or like similar to a court trial where the creditors,

the court, trustee, and even the official receiver are allowed to ask the debtor questions as

relating to his dealings with the mission of finding out the truth.

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The composition or scheme of arrangements can be said to be highly dependent on the outcome

of the public examination. If for example it is found out that the debtor had proper conduct and

that he is genuinely unable to pay his debts, then it is more likely for the creditors to accept and

even for the courts to approve such a proposal. On the other hand, if the debtor is seen to be

fraudulent in his ways, then it is unlikely that a proposal to the creditors for a composition will

be accepted.

A composition can be seen as being a favor to the debtor, a way in which the law lends a hand to

the debtor to resolve his debts with the creditors in a fair way. But as much as the law tries to

rehabilitate the debtor, it must also protect the interests of the creditors by ensuring that the

dealings and affairs of the debtor are clear and transparent. This is accomplished by way of

public examination which must conclude before a scheme of arrangements is approved by the

court.

REFERENCES:

1. The Bankruptcy Act, Chapter 52, Laws of Kenya.

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 Angela Kagunyi

Reg No.1014711

Sign:__________

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