Alternatives to Bankruptcy under the Kenyan Insolvency Law

ALTERNATIVES TO BANKRUPTCY FOR NATURAL PERSONS.

Introduction.

Bankruptcy is a legal proceeding involving a person who is unable to repay outstanding debts[1]. It is only applicable to natural persons;[2] legal entities undergo the process of administration. Bankruptcy is a legal process that discharges most debts, but has the numerous disadvantages that may impair an individual. Therefore, to avoid bankruptcy and at the same time be able to discharge accrued debts, an individual(s) may seek alternative processes to bankruptcy.

This article seeks to analyse the provisions of alternatives to bankruptcy for natural persons in the wake of a newly enacted Insolvency Act. It will provide information on the alternatives that apply to other jurisdictions specifically the United States, United Kingdom, New Zealand, South Africa and Nigeria consequently, making it possible to determine where Kenya lies in the development of the laws on insolvency within the global context and assist the reader to draw out any recommendations that may be applicable to improve the law within Kenya.

Alternatives to bankruptcy under the previous regime.

These alternatives to bankruptcy are provided for under Section 14 of the Insolvency Act and include voluntary arrangements, proposal to creditors, summary instalment orders and entering the no asset procedure.

This is a fairly new modification under the new Insolvency Act. The previous Act[3] had a limited provision regarding the above subject under Section 18 of the Act. It provided that a debtor could make a proposal to satisfy his debts through a scheme of arrangements within 4 days of submitting his state of affairs or as the Official Receiver may fix[4]. The proposal should be in writing, signed by him or by a special agent, and embody the terms of the composition or scheme, and set out particulars of any sureties or securities proposed. This proposal is then lodged with the Official Receiver[5].

A subsequent meeting of creditors would be held by the Official Receiver (OR) where the proposal of the debtor would be presented and approved subject to a majority in number and three-fourths in value of all the creditors who will have accepted the proposal. This will be deemed to be duly accepted with the approval of the court[6].

The Effect of composition or scheme is that its approval will not be binding to a creditor who will not be discharged by the bankruptcy proceedings unless that creditor expressly accents to the composition of schemes[7].

Alternatives to Bankruptcy under current regime

A.    VOLUNTARY ARRANGMENTS

1.      Entering into an Individual Voluntary Arrangement[8]. (I.V.A)

An individual voluntary arrangement I.V.A is a private agreement between the debtor and his creditors but it often includes the court especially in Kenyan law. Further, it is an agreement with ones creditors to pay or all part of his/her debts, it is a compromise agreement. Such an arrangement would give you more power over your assets than in a bankruptcy procedure[9].  It replaces the old concept of a composition with creditors after the making of a receiving order or an adjudication of bankruptcy[10]

What is the procedure?

If a debtor wants to make a proposal under a voluntary arrangement, the court has the power to order a meeting that convenes the creditors[11]. The debtor may make an application to the court for an interim order that states that he wants to make a proposal to the creditors for a composition in satisfaction of debts or a scheme of arrangement of the debtor’s financial affairs[12]. If the debtor is an undischarged bankrupt he must first give notice to the official receiver of his proposal then make the application[13], further the application may not proceed if there is a pending bankruptcy application made by debtor himself[14]

This proposal must provide for a person to be a supervisor of the voluntary arrangement[15], this supervisor must in turn be an authorized insolvency practitioner[16].

While the application for an interim order is pending, a landlord may exercise a right of forfeiture[17]with the courts approval, and the court may also prevent any distress from being levied on the debtor’s property and stay any action thereto[18].this denotes the principle that in insolvency proceedings the court is the final arbiter.

If the court hears the application and is satisfied that;

1.      That on the day of making the application he was an undischarged bankrupt or able to make an application for debtors own bankruptcy

2.      That in the last 12 months no similar application has been made by debtor

3.      That the supervisor enlisted is willing to act in relation to the proposal

The court will grant the order in the view that it will help facilitate the consideration and implementation of the debtor’s proposal[19]. The interim order will be valid for 14 days[20] however the court may prolong if need be[21]on the application of the debtor.

In the instance that the debtor is an undischarged bankrupt the order may contain provisions as to the bankrupts conduct as well administration of his estate for the time that the order is to have effect[22].

When the interim order is made the supervisor stated under the proposal becomes the provisional supervisor. He/she must now as soon as is practicable submit a report to the court and this report must state; (1) whether in the supervisors opinion: the proposal has a reasonable prospect and thus meeting need be set and as such the particulars of the meeting are to be contained in the supervisors report.

For the supervisor to make this report the debtor must furnish him with documents setting out the proposal and a statement of debtors financial affairs which should contain information relating to his/her creditors, debts & liabilities and debtors assets as well as any other prescribed information[23]. The provisional supervisor may be replaced if he dies, fails to submit report or if it is impracticable and inappropriate for he/she to continue to act as such[24]

If the court receives the provisional supervisors report and is satisfied that a meeting of creditors must be conceived to consider the proposal, the court will order so[25]. If dissatisfied, court discharges proposal.

Where a debtor intends to make a proposal and no application for an interim order is made and debtor is an undischarged bankrupt, the procedure is the same only that now the court under the power of section 33 will appoint an authorized insolvency practitioner[26].

When it is reported in both scenarios[27] that a meeting of the creditors should be convened, the court will direct so and the time, date and place should be in the supervisors report[28]. Every creditor must be summoned to the meeting[29].

The main purpose of this meeting is to give the creditors a chance to approve or disapprove the debtor’s proposal[30]. In this meeting they will elect a chair[31] and the chair will divide the creditors into 3 groups (preferential, secured and unsecured creditors)[32]. This meeting may be adjourned[33]

A modification to the proposal will only be allowed if the debtor consents[34], if such a modification affects a creditor, he/she must consent[35]. At the conclusion of the meeting the chair must report to the court the result, and thereafter he/she must notify the interested parties of the result[36]. If the result is the disapproval of the debtor’s proposal then the court will suspend the interim order[37].

Approval of the proposal

The proposal is approved at the meeting by a majority of votes in no and value of creditors present or by proxy[38]. The chair in deciding the majority may admit/reject proofs of debt, admitted proof of debt is an indicator of one meriting the position of a creditor[39].anyone who attended the meeting was entitled to vote at the meeting may apply to the court in 30 days[40] to make an order approving the debtors proposal. The court may order approval or any other order that it sees fit nut must be guided by the best interests of the debtor and creditors[41]. The court may approve the proposal even if preferential and unsecured creditors did not approve[42]. However other factors that must guide the court include; (1) a majority of secured creditors approved, (2) the proposal does not discriminate against dissenting groups and (3) there is respect over the preferential creditor’s interest over the unsecured creditors[43].

Effect of Approval

The effect of an approval is that the proposal transforms into a voluntary arrangement[44], this in turn binds the debtor and creditor[45], further the provisional supervisor becomes the supervisor of the arrangement[46]. Approval will also dismiss any bankruptcy applications against the debtor that were pending/ stayed.[47] 

The decision to approve the proposal may be challenged on the ground that it unfairly affected the interest of a creditor or there was a material irregularity, this application may be made by th debtor, creditor (entitled to meeting and deserved notice of meeting) and the provisional supervisor[48].Court may then, if satisfied revoke the approval and give further direction for a further meeting to be held[49].

The supervisor is now responsible for the implementing and supervising the voluntary arrangement, all the powers conferred by him are necessary and incidental to him/her exercising responsibility over the arrangement[50] . However, any decision made by supervisor is subject to the court review on application and if found to be unfair or illegal the court may quash the act or confirm it, furthermore it may order other orders that it sees fit/appropriate[51]  

2.      Expedited Procedure (Voluntary arrangement or proposal under subdivision 2, Course outline)

This section applies to situations whereby the debtor intends to make a proposal to his/her creditors for a voluntary arrangement[52] and the qualifications for this section are that the debtor must be an undischarged bankrupt, the proposal must state that the Official Receiver (O.R) will be the supervisor of the proposal and that no interim order has been made under Section 304.

To facilitate the proposal the debtor is expected to provide the official receiver with the proposal document and a statement of his/her financial affairs (which includes list of creditors debts, assets and liabilities)[53].

If the official receiver is satisfied that the proposal has a reasonable prospect of being approved and implemented, he/she will make an arrangement to invite creditors to approve or reject it[54] and who is a creditor?

A creditor is a person in respect of a bankruptcy debt and/or aware of a person’s claim and address.[55]The supervisor (O.R) must now give each creditor a copy of the debtors proposal and a criteria on how he/she intends to determine whether the proposal is approved or rejected, further in this section there will be no opportunity for modifications to be suggested then made to the proposal[56].

This meeting of creditor, when convened is governed by the same rules as Sec 310. The supervisor(O.R) has a duty to report to court as soon as is practicable whether the proposed voluntary arrangement has been approved/ rejected[57].  If the proposal is approved, It takes effect as a voluntary arrangement[58]. Concomitant to this is that it now binds the creditors, debtors and anyone entitled to participate in the arrangement[59].

The official receiver has the power and duty to apply to court for the annulment of a bankruptcy order unless there are compelling reasons not to do so[60]. This application may not be made in the period when the voluntary arrangement may be challenged in court, period with which appeal may be made[61]. The court may on the other hand give directions as the conduct of the bankrupt and as to the administration of his/her estate that is necessary to facilitate implementation of the voluntary arrangement[62] .

The court may revoke a voluntary arrangement if it unfairly affects the creditor’s interests or if there has been a material irregularity. What is a material irregularity? One interrogates.

Judge Freize[63] provides two perhaps perfect examples, he writes that a guiding factor is to look at the treatment of one creditor as against the rest thus the failure to consider some certain votes that may have had an effect of the decision of the meeting is a material irregularity and also that misleading information in the proposal may constitute a material irregularity[64].

The order to revoke the voluntary arrangement may be made by anyone entitled to participate in the arrangements, bankruptcy trustee and the official receiver.[65] This order must be made within 30 days from when the O.R reported to court of the approval lest the doctrine of laches applies. However, an exception is that if a creditor was not aware of the proceedings they may make an application within 30 days from when they became aware of the voluntary arrangement[66].

Criminal Conduct

It is a breach of the law if a debtor makes false, misleading representation or fraudulently does or omits to do any act for purposes of obtaining approval to a voluntary arrangement[67]. He/she becomes liable to a fine not exceeding two million shillings or to imprisonment for not more than five years[68].

The supervisor of the arrangement must as soon as he becomes aware of the offence report to the A.G or D.P.P and if criminal proceedings are instituted then the supervisor is to assist the D.P.P as much as is reasonably expected[69].

B.     SUMMARY INSTALMENT ORDER (S.I.O)

A summary installment order is an order from the official receiver directing the debtor to pay the debtors debts in full/installments[70]. Official receiver (O.R) may make the S.I.O on application of the debtor or the creditor with the debtors consent. The O.R may also refuse an application for SIO if;

1.      It is not in the form prescribed by insolvency regulations

2.      Must state debtors proposal to pay creditors in full or the proportion of the outstanding debts that debtor proposes to pay

3.      Must state total amount of installments (weekly,monthly, yearly)

4.      Name and address of debtors proposed supervisor and the supervisors written consent therewith

5.      If there is no proposed supervisor, debtors must state reasons why

6.      Whether any debts are secured and/or Guaranteed

7.      Amount of debtor earnings

The O.R makes an order if it is satisfied that the debtors total assets does not exceed the amount prescribed by insolvency regulations and that debtor is unable to immediately pay those debts.

The O.R must before making S.I.O present an opportunity for the creditors and debtors to make representations on the matter[71]. Apart from the S.I.O the O.R can make further additional orders that are necessary and incidental to the facilitation of the order such as an order regarding debtor’s future income[72]

The S.I.O is deemed ineffective if it fails to mention the appointment of a suitable and willing person to supervise compliance of S.I.O[73] this supervisor may be required to produce bond t ensure compliance with the act. The O.R however can dispense with this requirement of a supervisor, in such a case the provisions will apply as if the debtor is himself mutatis mutandis

The supervisor when appointed is responsible for the debtor’s compliance[74], he may also charge remuneration.

The O.R may by notice of 7 days require the supervisor or past supervisor to provide documents relating to the debtors conduct and administration of estate/property. Failure to do this is an offence that is punishable by a fine not more than two hundred thousand shillings[75] . The O.R may even terminate the supervisor[76]

The period for payment in the S.I.O must not be more than three years but in special circumstances acceptable to the supervisor it can be five years[77].

The debtor, creditor or supervisor may at any time apply to the O.R to either vary or discharge S.I.O[78]. The debtor shall pay installments in a manner prescribed by the insolvency regulations ,failure of this may make the O.R cancel the S.I.O[79]

While the S.I.O is in effect it prevents and stays all proceedings against debtor in respect of bankruptcy unless the O.R approves or debtor is in default of the S.I.O[80]

The supervisor shall send out a notice of the S.I.O to every creditor who is known to the supervisor, whose name is on debtor’s application for an S.I.O and who has a proved debt. The failure without reasonable excuse is an offence and the supervisor shall be liable to a fine not exceeding two hundred thousand[81].

The O.R must maintain/establish public register of persons who are subject to S.I.Os .

A creditor who has proved debt is entitled to be included as a creditor in the administration of the debtor’s estate under the S.I.O. other creditors may object to the claim of another creditor by applying to the O.R.[82] one who becomes a creditor after the S.I.O has been made and who proves debt may elect to be included in the administration of the debtors estate. Might this be a strand of the doctrine of election? If the person so elects he may be paid dividend of the S.I.O only after the earlier creditors are paid[83].

A debtor who fails to pay amounts due under an S.I.O is presumed to have been able to pay that amount from the date of the order or has neglected to pay it. Another consequence of non-payment is that all stayed proceeding resume. On failure the supervisor must give notice to the O.R.

A debtor who is the subject of an S.I.O commits an offence if he obtains credit of more than one hundred thousand shillings not unless he/she informed the credit provider that he was subject to a S.I.O, any debtor guilty of this offence is liable to a fine not exceeding one million shillings or to an imprisonment of not more than twelve months or better yet, both.

C.    THE NO ASSET PROCEDURE

The no asset procedure is an alternative to bankruptcy provided for those debtors who have no realisable assets. Under Division 3 of the Insolvency Act, the process is commenced once a debtor applies to the Official Receiver for entry into the no asset procedure.[84] The application for entry into the no asset procedure by a debtor is done by lodging two documents; the first is an application form in the prescribed form as per the insolvency regulations and the other a statement setting out the debtor’s financial position. Where a debtor’s application or statement of financial position is incomplete or incorrect, the Official Receiver may reject the application as a whole.[85]

Criteria for entry to the no asset procedure

The Act states that an Official Receiver shall admit a debtor to the no asset procedure if satisfied that the debtor;[86]

·         has no realisable assets,

·         has not previously been admitted to the no asset procedure,

·         has not been previously adjudged bankrupt,

·         has a total debt that is not less than one hundred thousand shillings and not more than four million shillings, and

·         does not have the means to repay the debts.

There are exceptions as to what the term realisable assets includes[87] but the use of the word shall in this section suggests that the Official Receiver is obligated to admit a debtor if the debtor satisfies the above mentioned requirements.

Disqualification

The debtor can however be disqualified from entry into the no asset procedure in certain cases. They include circumstances where the Official Receiver is satisfied, on reasonable grounds,  that the debtor has[88]

·         concealed assets with the intention of defrauding creditors,

·         engaged in conduct that would, if he were adjudged bankrupt, amount to an offence,

·         incurred a debt/s knowing that he or she does not have the means to repay, and

·         where a creditor intends to apply for the debtor to be adjudged bankrupt in a situation where, if he were to be adjudged as such, the outcome for the creditor would be materially better as compared to the no asset procedure.

Restrictions to Obtaining Credit

The Official receiver shall send a summary of the debtor’s assets and liabilities to each creditor of the debtor.[89] The debtor is subsequently restricted from obtaining credit after the application is made which includes in the form of credit purchase transactions such as hire purchase. Such credit prohibited is one which exceeds the amount of ten thousand shillings and even one where the arrangement is one that involves a joint debtor. If a debtor wishes to obtain credit in the circumstances mentioned, he or she must first inform the credit provider that the debtor has applied for entry into the no asset procedure. A debtor who contravenes this rule is liable upon conviction to a fine not exceeding five hundred thousand shillings or to imprisonment for six months or to both.[90]

Admittance

A debtor is considered admitted to the no asset procedure once the Official Receiver (OR) sends the debtor notice in the form prescribed. The OR then delivers notice to each creditor of the admittance as well as makes constructive notice of it in a publication and in a manner prescribed by the insolvency regulations.[91] The OR is required to establish a pubic register[92] of persons admitted to the no asset procedure as per Division 2 of Part XII (The Act says Part XI which is incorrect).[93]

Creditors are barred from enforcing debts against debtors who have been admitted to the no asset procedure[94] although certain debts still remain enforceable[95]:

·         Amounts payable under a court order made under the Matrimonial Causes Act (we can assume this means the Marriage Act and the Matrimonial Property Act)

·         Amounts payable under the Children Act

·         Amounts owed in respect of a loan to secure the education of a dependent child or step-child of the debtor

Debtor’s duties after entry into the no asset procedure

The debtor shall provide the OR with such assistance, documents and information reasonably necessary for application of the procedure. Where any change occurs in the debtor’s circumstances that would allow him to repay debts, he or she shall give notification, in written form, of that change to the OR. The debtor is also barred from obtaining credit whether alone or jointly, of an amount more than one hundred thousand shillings.[96] It is an offence under the Act for the debtor to obtain credit while admitted to no asset procedure but a debtor can institute the defence that the credit provider was aware.[97] Conviction of such an offence draws a liability of a one million shilling fine or imprisonment of a term not exceeding 12 months or to both

Termination of the debtor’s participation in the no asset procedure

There are a number of ways in which participation can be terminated by[98];

·         The Official Receiver

·         Discharge of the Debtor

·         Debtor applying for his or her own bankruptcy

·         Creditor entitled to do so, applying for the debtor’s bankruptcy and debtor is adjudged bankrupt

The OR may terminate where a debtor was wrongly admitted for example where he or she concealed assets or misled the OR. The OR may also terminate where debtor’s financial circumstances have changed. In this process the OR sends a notice to the debtor to the effect that the he or she is terminated form participation. The termination is said to take effect once sent whether or not debtor receives it. The OR is also required to send a notice to each creditor.[99] The OR may apply to the Court on the ground that the debtor has concealed assets or misled the OR and the debtor may make a preservation order pending determination for the debtor’s bankruptcy.[100]

The effects of termination are that the debtor’s debts that became unenforceable become enforceable and the debtor becomes liable to a pay any penalties and interest that may have accrued. These effects do not apply to termination by discharge.

A creditor may apply to the OR for the termination of the debtor on the grounds that the debtor did not meet the criteria for admission into the no asset procedure or that there are reasonable grounds for the OR to conclude that the debtor can be disqualified.[101]

Discharge of the debtor from participation in the no asset procedure is automatic upon the end of 12 months after the date on which debtor was admitted. This however does not apply where the OR is satisfied that the 12 month period should be extended for the purpose of properly considering whether debtor’s participation in the no asset procedure should be terminated and he or she sends a notice to the debtor before the end of that period.[102] In the deferral notice sent, the OR shall specify an alternative date for automatic discharge and such date shall not be later than 35 days after the end of the 12 month period.[103] The Or shall send the deferral notice to the creditors as well. The deferral notice has effect whether or not the debtor receives it.[104] The OR may revoke the deferral notice and the debtor is automatically discharged from the no asset procedure if revoked before the end of the 12 month period or after that period on the date of the revocation. Discharge does not release a business partner of, a co-trustee of, a person jointly bound or in contract with or a guarantor of a debtor.

The effects of discharge are that debtor’s debts that became unenforceable are cancelled and that the debtor is no longer required to pay any part of the debts including penalties and interest that may have accrued. This does not apply where a debt has been incurred by fraud or fraudulently breach of trust which the debtor was party; or any debt for which the debtor has obtained forbearance through fraud. The latter types of debt incur the effects similar to termination by the OR.[105]

ALTERNATIVES TO BANKRUPTCY IN OTHER JURISDICTIONS

Alternatives to bankruptcy in United Kingdom.

The Insolvency Act of the UK[106] divides bankruptcy into separate local regimes for England and Wales; and for Northern Ireland, and the second part is for Scotland.

Bankruptcy in England and Wales.

As an alternative to bankruptcy[107] a debtor may propose an Individual Voluntary Arrangement (IVA) to his creditors[108] or a Debt Relief Order if debts do not exceed a certain threshold[109].

In an IVA there is usually a proposal to creditor(s) to pay some or all of the debts over a period of time; usually 5 years; by selling assets or making payment out of income or a combination of the both. This must be approved by a licensed insolvency practitioner who will then convene a creditors meeting[110]. In this meeting, the proposal will be presented to the creditors and will only pass if more than 75% of creditors assent to it and will be binding to all creditors[111]. In practice, partial payment of debts is achieved and the rest is written off after the expiry of the specified time frame in the proposal.

Debt relief orders (DROs) is another alternative to bankruptcy. With a DRO, the debtor is usually discharged from their debt and creditors cannot recover their debt without the leave of the court[112]. The procedure for application is done through a debt adviser to the official receiver, an officer of the court[113]. There are certain considerations for a debtor to qualify for this order; they must owe less than 20,000 Euros, have less than 50 Euros as spare income, have less than 1000 Euros as assets, reside or work in either jurisdiction within the previous 3 years, and not have applied for a DRO within the previous 6 months[114]. This procedure usually excludes student loans[115].

Bankruptcy in Scotland.

There are alternatives to bankruptcy that can help individuals deal with debt problems, these include the Debt Arrangement Scheme or Trust Deeds. These types of agreement are between the debtor and the creditors. There are also organisations that give free professional advice to individuals experiencing problems with debt such as Citizens Advice Scotland.

Alternatives to bankruptcy in the United States of America.

U.S. Code: Title 11 which is the Bankruptcy code for the federal state does not provide any alternatives to bankruptcy processes but provides for Non-profit budget and credit counselling agencies; financial management instructional courses. Therefore, for proper analysis of alternatives to bankruptcy in the United States; this part of the paper shall focus on the state of California[116].

California bankruptcy laws are consistent with the federal law but remain particular to the situation of the State. Under these laws there are two alternatives to bankruptcy; California Debt Consolidation Loans and California Consumer Credit Counselling[117].

California Debt Consolidation Loans is a form of sequestration where one acquires a loan with a consolidating company which clears the debt with all creditors and the only accruing debt is from the consolidating company. There are two modes of payment. The first is to secure the home as collateral (mortgage) and the other is to make monthly payments to the consolidating company.

Consumer Credit Counselling provides a debt repayment plan where the debtor may be required to deposit an amount of money with the counsellor every month. The counsellor then develops a credit paying schedule which will be used to repay the creditor. This method is usually appealing to creditors as it speaks to the issue of credibility and accountability through the involvement of this accredited institution.

Alternatives to bankruptcy in New Zealand.

In New Zealand, the No Assets Procedure (NAP) is an alternative to bankruptcy[118]. The criteria for eligibility is that the total amount of debt between $1,000 and $40,000, the assets must not be realisable,  the debtor must lack the ability to repay any amount towards your debts, and should not have been in a NAP or been adjudicated bankrupt[119]. The usual term for a NAP is one year although this can be extended by up to 25 working days by the Official Assignee in certain circumstances[120]. Once a NAP is entered, creditors cannot enforce a debt or add further penalties to the debt accruing[121].

Alternatives to Bankruptcy in South Africa

Debtors in a state of insolvency may choose the following alternatives to bankruptcy in order to remedy their financial status.

Debt Payment on Credit: This is merely a short-term solution and should only be used if the insolvency is temporary of nature. Existing lines of credit are used to borrow money or to free up other funds to pay off overdue creditors in order to avoid bankruptcy. Although it creates new liabilities, new extended payment deadlines are obtained.

Debt Consolidation: One big loan is used to pay off many others and the one loan is the repaid over a long-term period. This is usually done to secure a lower interest rate and for the convenience of having to pay only one creditor, thus saving on administrative and finance costs.

Rescheduled Debt Payment: This option requires the consent and cooperation of creditors and is usually considered a medium to long-term strategy. Creditors are informed of the situation and requested to reschedule the debt repayment over an extended time in lower monthly instalments. The lower monthly repayments will lessen monthly expenditure, but will result in extended repayment periods, which usually results in more interest payable.

Liquidation of Assets: Selling off assets is also a common hedge against insolvency in order to generate immediate cash for timely debt repayment, especially amongst businesses.

Administration Order: If a person’s debts do not exceed R50, 000 an application can be made to the relevant magistrate's court for an administration order. This allows payment of debts in fixed monthly instalments that will not exceed the difference between the insolvent’s income and reasonable expenditure.

Judicial Management: This option is only available for companies. An application is made to the relevant court, in order to have the company placed under judicial management. A Judicial Manager is appointed to run the company and to pay off the company debts as and when money becomes available for this purpose, subject to certain conditions.

Compromise: An agreement is reached between the debtor and the creditors that certain assets will be liquidated subject to terms and conditions. The proceeds will then be accepted as full and final settlement of the debts, once again subject to certain terms and conditions.

Alternatives to Bankruptcy in Nigeria

Debtors in a state of insolvency may choose the following alternatives to bankruptcy in order to remedy their financial status.

Proposal to creditors: an offer to creditors to pay a percentage of what is owed over a specific period of time, or to extend the amount of time to pay off the debt, or a combination of both. Creditors vote to accept or reject the proposal.

Compromise: an informal agreement with creditors as to reduction of the owed amount or increasing of the period given to pay satisfy the debt.

Nigeria’s insolvency laws remain strict and largely unforgiving to the insolvent.

Conclusion

The Insolvency Act of 2015 has provided for elaborate and intricate mechanisms by which an insolvent may seek relief once he or she is unable to pay debts especially with regard to alternatives to bankruptcy. Within social setting in Kenya, people are afraid of the word bankrupt and would rather suffer in debt or just avoid risk all together that could lead to indebtedness. This unfortunately limits entrepreneurial developments and scientific innovations that could benefit the economy and society in general.

Additionally, there is a lack of awareness of the options at a debtor’s disposal in the event that one is unable to set off their debts once they have become due. This only fosters fear already imbedded so deep in the psyche of the Kenyan who would rather abscond and hide from creditors or totally put off any ventures that require more investment than he can ever assume to generate on his own.

Provision of alternatives that are as diverse as those in the 2015 Act is a positive step towards creating a more favourable environment for individuals who could use such relief but their needs to be increased advocacy so that people are made more aware of their options.

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[1] http://www.investopedia.com/terms/b/bankruptcy.asp <accessed on 17/10/2015>

[2] The Insolvency Act of Kenya 2015, s.12

[3] Bankruptcy Act CAP 53 [Rev. 2012]

[4] Insolvency Act of Kenya 2015, s. 18

[5] Insolvency Act 2015, s.18

[6] Ibid

[7] Ibid, s.19

[8] Insolvency Act 2015, S. 303

[9] https://www.gov.uk/options-for-paying-off-your-debts/individual-voluntary-arrangements

[10] Section 18 & 23, Old Bankruptcy Act 32 of 1930

[11] Insolvency Act, s. 309

[12] Ibid, s.303

[13] Ibid, s. 304(5)

[14] Ibid, s.304(6)

[15] Ibid, s.304(2)

[16] Ibid, s.304(3)

[17] Ibid, s.305(1)(a)

[18] Ibid, s.305(1)(b)(1)

[19] Ibid, s.306(2)

[20] Ibid, s.306(5)

[21] Ibid, s. 307(5)

[22] Ibid, s.306(3)

[23] Ibid, s.307(2)(b)

[24] Ibid, s.307(4)

[25] Ibid, s.307(7)

[26] Ibid, s.308

[27] Ibid, s.307 & 308

[28] Ibid, s. 309 (1)

[29] Ibid, s. 309 (2)

[30] Ibid, s.310

[31] Ibid, s.310 (2)

[32] Ibid, s.310 (3)

[33] Ibid, s.310 (9)

[34] Ibid, s.310 (4)

[35] Ibid, s.310 (7)(a)

[36] Ibid, s.310 (10)

[37] Ibid, s.310(11)

[38] Ibid, s.311(2)

[39] Ibid, s. 311(3)(b)

[40] Ibid, s.311(4)

[41] Ibid, s.311(7)

[42] Ibid, s. 311 (8)

[43] Ibid

[44] Ibid, s. 312

[45] Ibid, s.312 (2)

[46] Ibid, s. 312 (3)

[47] Ibid, s. 312 (7)

[48] Ibid, s.314

[49] Ibid, s.314 (4)

[50] Ibid, s.315 (1)

[51] Ibid, s.315 (3)(b)

[52] Ibid, s.316

[53] Ibid, s.316 (2)

[54] Ibid, s. 316 (3)

[55] Ibid, s.316 (4)

[56] Ibid, s.316 (5)

[57] Ibid, s.317

[58] Ibid, s.318

[59] Ibid, s.318 (2)

[60] Ibid, s.318 (4) & 319

[61] Ibid, s.319(3)

[62] Ibid, s.319(5)

[63] http://www.wardhadaway.com/lawyers/steven-frieze/

[64] S. A. Frieze, Personal Insolvency Law in Practice, Sweet and Maxwell Publishers, pg 218

[65] Ibid, s.320 (2)

[66] Best interests of the creditors/debtors principle?

[67] Ibid, s.321

[68] Applies to Vol. arrangements under Section 312(1) & 319(1)

[69] Ibid, s.322

[70] Ibid, s. 323

[71] Ibid, s.326

[72] Ibid, s. 327

[73] Ibid, s.328

[74] Ibid, s. 329

[75] Ibid, s. 330

[76] Ibid, s.331

[77] Ibid, s. 332

[78] Ibid, s. 333

[79] Ibid, s.334

[80] Ibid, s.335

[81] Ibid, s. 336

[82] Ibid, s.339

[83] Ibid, s. 339(4)

[84] Insolvency Act 2015, s. 344

[85] Ibid s. 344

[86] Ibid s. 345

[87] Ibid s. 345(2)

[88] Ibid s. 346

[89] Ibid s. 347

[90] Ibid s 348

[91] Ibid s.349

[92] Ibid s. 350

[93] Ibid s.710

[94] Ibid s.351

[95] Ibid s.351(2)

[96] Ibid s. 352

[97] Ibid s. 353

[98] Ibid s.354

[99] Ibid s.355

[100] Ibid s. 356

[101] Ibid s.358

[102] Ibid 359

[103] Ibid 359(3)

[104] Ibid 359(4)

[105] Ibid s.360

[106] 1986.

[107] Insolvency Act of 1986 UK, s. 264(c)

[108] Part VIII of the Insolvency Act 1986

[109] Insolvency Act of 1986 UK, s. 276

[110] Part VIII of the Insolvency Act 1986

[111] Ibid.

[112] https://www.gov.uk/options-for-paying-off-your-debts/debt-relief-orders <accessed 17/10/15>.

[113] Ibid.

[114] Ibid.

[115] Ibid.

[116] 11 U.S. Code § 111 - Non-profit budget and credit counselling agencies; financial management instructional courses

[117] http://www.californiabankruptcy.info/alternatives.html <accessed 17/10/15>

[118]http://www.insolvency.govt.nz/cms/financial-trouble/personal/step3/no-asset-procedure/key-points-nap <accessed on 17/10/15>

[119] Ibid.

[120] Ibid.

[121] Ibid.