Professional Documents
Culture Documents
ANSWERS
1. What are 'acts of Bankruptcy'?
The bankruptcy law applicable in Kenya is found in the Bankruptcy Act (Cap. 53
Laws of Kenya) hereinafter the Act. Under section 5 of the Act, if a debtor
commits an act of bankruptcy the court may, on bankruptcy petition being
presented either by a creditor or by the debtor, make a receiving order.
"3. (1) A debtor commits an act of bankruptcy in each of the following cases
(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...;
(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, 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;
1. The amount owed is not less than 50 pounds or Kshs. 1000 as fixed under
the English Bankruptcy Act of 1914;
1. The act of bankruptcy on which the petition is grounded has occurred within
3 months before the presentation of the petition;
1. The debtor is domiciled in Kenya or within a year before the date of the
presentation or the petition has ordinarily resided or other dwelling house or
a place of business in Kenya 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.
1. In relation to Infants
Generally, infants are not capable of incurring debts or contracting except contracts
for necessaries. Also, infants are not liable in respect of debts that they have
incurred. But if an infant fraudulently contracts a debt during his infancy he will be
held liable for the debt and the creditor may claim in bankruptcy on his acquiring
the age of majority. This is as per the Infants Relief Act of England 1874 which is
a statute of general application to Kenya.
2. Insane Persons
3. Married Women
Section 117 of the BA provides that every married woman shall be subject to the
law relating to bankruptcy as if she were 'feme sole'.
5. Companies/Corporations
Bankruptcy proceedings are not applicable to companies. These are dealt with
under liquidation and winding up provisions of the Companies Act Cap 486.
Section 118 of the BA provides that a "Receiving Order shall not be made against
any corporation or against any association or company registered under the
Companies Act or any enactment repealed by that Act." The position in England
has been reformed by the Insolvency Act.
6. Partnerships
8. Judgement Debtor
The Bankruptcy Act does not prevent an undischarged bankrupt from creating
valid debts and since he may commit an act of bankruptcy, institution of
subsequent bankruptcy proceedings before he is discharged from a prior
bankruptcy is permissible.
Bankruptcy Notice
On its part, a bankruptcy notice is to be in the prescribed form and must state the
consequences of non-compliance in an endorsement to it. A bankruptcy notice can
only be issued at the instance of a creditor who has obtained a final judgement in a
Kenyan court. The prescribed form of a bankruptcy notice is Form No. 5 under the
Bankruptcy Rules. A period of 7 days for compliance applies where the notice is
served in Kenya.
The notice must require payment to be made in exact accordance with the terms of
debt. For instance, if the debt is a judgement debt and a portion of it has been paid,
there not being any agreement to take payment by instalments, the bankruptcy
notice must issue for the balance unpaid and not for the whole debt.
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. Such an act of bankruptcy is available not only to the creditor
issuing the notice but to any other creditor provided the latter obtains an affidavit
of non-compliance from the creditor issuing the notice.
If the debtor wishes to oppose the petition, under rule 128, he must file a notice
with the registrar of the court specifying the statements in the petition which he
denies. Further he must send a copy of the notice to the petitioning creditor 3 days
prior to the date of the hearing.
At the hearing set by the registrar under Rule 126, the petitioning creditor is
required to prove the debt. He must also prove service of the petition on the debtor
and the act of bankruptcy being relied upon. Thereupon the court may make a
receiving order as per section 5 of the Act for the protection of the Estate. If the
court is not satisfied with proof of any of these matters or is satisfied by the debtor
that he is able to pay his debt or that for other sufficient cause no order ought to be
made it may dismiss the petition under Section 7 (3) of the Act.
As per Section 7(4) and (5) of Act, if the Act of bankruptcy which is being relied
upon is non-compliance with a bankruptcy notice the court may if it thinks fit stay
or dismiss the petition if an appeal is pending from the judgement or order.
The court may also stay all proceedings on the petition if the debtor denies
indebtedness to the petitioner or the amount of the debt until that has been
determined. Where proceedings are stayed the court may if by reason of the delay
caused by the stay of proceedings or for any other cause it thinks just make a
receiving order on the petition of some other creditor and shall thereupon dismiss
on such terms as it thinks fit the petition in which proceedings have been stayed.
The receiving order also does not make the debtor bankrupt nor does it deprive him
of the ownership of his property. It is only the possession and control of his
property that are taken away from him. Thus any transactions subsequently entered
into by the debtor are prima facie invalid whether or not the other party to the
transaction has notice of the receiving order.