Nicco-Law: Status of a Bankrupt's Property acquired Bankruptcy, Kenyan Insolvency Law

STATUS OF THE PROPERTY ACQUIRED DURING BANKRUPTCY

Until the bankrupt is discharged:

1. Property that is acquired by the bankrupt or that is in the possession of a bankrupt (whether in or out of Kenya) vests in the bankruptcy trustee. The trustee need not intervene or take any other step in relation to the property. Hence the bankruptcy trustee then acquires the legal right or power to do anything or own the land or the property[1]. Therefore as a result the bankrupt then loses any rights to the property.

2. The powers that the bankrupt could have exercised on the property for his benefit now vests on the bankruptcy trustee. This therefore means that it becomes the bankruptcy trustee’s job to take control, authority and even possession of the bankrupt’s property.

However if the property is being held by the bankrupt in trust for another party then the bankruptcy trustee shall assume control of the property and act as the new trustee in place of the bankrupt. The bankruptcy trustee shall then be required to deal with the property for the benefit of the beneficiaries to the trust. (S106)

· After discharge of a bankrupt the bankruptcy trustee shall not claim interest in land:

i. Owned by the bankrupt

ii. That is subject to a mortgage or a charge

iii. Is not disclaimed by the bankruptcy trustee.

· After discharge of a bankrupt the bankruptcy trustee may as well not claim interest in land that he/she has not registered transmission.

However, the above two occurrences come into play if:

i. The bankrupt was in possession of the interest when the bankruptcy commenced.

ii. The bankrupt remained in possession until discharge from bankruptcy.

3. The section on the status of property acquired during bankruptcy does not apply to property vested in the bankrupt under an order made in S120(3)

Such orders are:

· An order that the disclaimed property be delivered to or vested in the bankrupt.

· An order that the disclaimer property be delivered to or vested in the person. {person; one who sustains loss or damage as a result of a disclaimer by the bankruptcy trustee}

Property vested in replacement Bankruptcy Trustee

In the event that a bankruptcy trustee is replaced then the powers vested in the previous trustee as regards the property transfer to the current rather replacement trustee.

Property held in trust by the bankrupt

Property held by a bankrupt in trust for another party shall vest in the bankruptcy trustee. This means that the bankruptcy trustee shall then become the trustee of this property held in trust by the bankrupt for the benefit of all beneficiaries to the trust.

Monies due to the bankrupt

A bankruptcy trustee may apply for an order to have money due to the bankrupt or any money to become due or payable to the bankrupt assigned or charged in favor of him/her if at all he/she deems it necessary.

Upon this application the court may make an order stating that money due to the bankrupt or any money due to the bankrupt any money to become due or payable to the bankrupt be assigned or charged in favor of the trustee.

The assignment or charge is a discharge (the person shall no longer be bound by restrictions placed upon him or her by any bankruptcy order[2]) to the person who owed the bankrupt who pays the bankruptcy trustee.

Certain payments be applied in accordance with the 2^nd Schedule

The bankruptcy trustee shall apply the following payments in accordance with the second schedule:

i. S150- An amount or periodic amounts during the bankruptcy to be paid by the bankrupt as a contribution towards payment of his/her debts.

ii. S170- Any amount paid to the bankruptcy trustee under an order made in S170 to pay off a bankrupt’s debt.

When Execution Creditor may retain Execution Proceeds

If a bankruptcy order has been made in respect of a debtor but before the order was made the creditor:

i. Had issued an execution against the debtor’s property or

ii. Had attached a debt payable by the debtor

then the creditor may retain what he/she attains from the execution or attachment process including the proceeds.

However, this is only allowable if the creditor had completed the execution or attachment:

i. Before the bankruptcy order was made

ii. Before the creditor had noticed that an application for an order of bankruptcy had been lodged.

If payment is made by the debtor to the creditor in the course of execution or attachment then the creditor may retain these as against the bankruptcy trustee. This shall be taken to be as if:

· The payment was the proceeds of the execution or attachment.

· The execution or attachment was completed when the payment was made.

If at all the payments made to the creditor by the debtor/bankrupt were as a result of irregular transactions (Division 19) then section 109 shall not apply.

Effect of notice to Judicial Enforcement Officer (J.E.O) of Bankruptcy

If a J.E.O (performs tasks such as; enforcing payment of court ordered monetary sanctions; contacting defendants to create and enforce payment plans, answer questions and monitor payment progress; process payments and maintains accounts; makes adjustments based on court orders[3]) is served with notice of the debtor’s bankruptcy:

i. Before the property is sold

ii. Before the execution is completed by the receipt or recovery of the full amount derived from the execution

then he shall, if required by the bankruptcy trustee, deliver to him/her all the money and goods that he had acquired from the bankrupt or that he had received as a result of the execution.

The bankruptcy trustee may sell all or any of the goods to satisfy a charge. {This charge being the costs of the execution}

J.E.O to retain proceedings of execution for 14 days after sale

The JEO is entitled to:

· Deduct costs of execution from proceeds of sale or money paid.

· Retain balance for the requisite period.

However this happens only if under the execution of a judgment is for an amount exceeding ten thousand shillings. The JEO then sells the property of the debtor or is paid money to avoid a sale. If noticed is served within requisite period to the JEO as regards the debtor’s application then he/she is required to pay the balance to the bankruptcy trustee. He is entitled to retain it as against the execution creditor.

What happens when JEO is served notice within the requisite period that creditor’s application has been made in respect of a debtor?

· He shall retain the balance until the application and any other application of which notice is served on JEO has been disposed of.

· The JEO shall:

· If a bankruptcy order is made in respect of debtor- pay balance to bankruptcy trustee.

· If the order is not made- pay balance to execution creditor. <he is entitled to retain it as against the bankruptcy trustee.

If the JEO is not served with notice within the requisite period then he shall pay the balance to the execution creditor who is entitled to retain it as against the bankruptcy trustee.

Requisite period means 14 days from the date of the sale or the payment to avoid sale.

Purchaser under sale by JEO

On sale by JEO of the debtor’s property the purchaser (if acting in good faith) acquires good title to the property as against the bankruptcy trustee.

Transaction in Good Faith and for value after Bankruptcy

If a bankrupt acquires property after bankruptcy has commenced the transaction is valid as against the bankruptcy trustee if:

· Seller deals with the bankrupt in good faith and for value.

· The transaction is completed without intervention from the bankruptcy trustee.

If the party concerned is a bank of which the bankrupt is a client then transaction shall include a receipt, payment and delivery of the charge or negotiable instrument. Payment of money or delivery of property by a legal personal representative to or by the direction of the bankrupt is transaction for value.

Execution and Attachment in Good Faith

If a bankrupt acquires property after bankruptcy has commenced an execution or attachment against the property is valid as against the bankruptcy trustee if:

· Is made in good faith.

· Is made in respect of a debt/liability incurred by the bankrupt after bankruptcy has commenced.

· Is completed before an intervention by the bankruptcy trustee.

Transfer of Bankruptcy Trustee’s Interest

If a bankruptcy trustee’s interest in property passes to a bankrupt after bankruptcy has commenced then:

· The bankruptcy trustee’s interest in the property ends.

· The interest passes in the manner to give effect to a transaction, execution or attachment.

PART II

Critically analyse the treatment of goods held by a bankrupt under a credit purchase transaction

Definitions and Terms

A “credit purchase transaction" is defined in the Insolvency Act as a hire-purchase agreement, a conditional sale agreement, a chattel leasing agreement or a retention of title agreement and a "purchaser", in relation to a credit purchase transaction, is the person to whom goods are disposed of under the transaction, and, if the rights of that person are transferred by assignment or by operation of law, includes the person for the time being entitled to those rights.

Under S. 131 of the Act, the following are important terms in the credit purchase transaction;

· Cash Price - The lowest price at which a person could have bought those goods from the creditor on the basis of payment in full at the time the sale was made or if there is no such price, the fair market value of the goods at the time the sale was made.

· Creditor – The person disposing of the goods under the transaction and if the rights of the person are transferred by either assignment or by operation of law, it means the person for the time being entitled to those rights.

· Debtor - The person to whom goods are disposed of under the transaction and if the rights of that person are transferred by assignment or by operation of law, it refers to the person for the time being entitled to those rights.

· Hirer - The person who is entitled to the use of the goods under the transaction and if the rights of that person are transferred by assignment or by operation of law, it refers to the person for the time being entitled to those rights.

Before Bankruptcy Commenced

If a bankrupt acquired goods on credit under a credit purchase transaction, before the bankruptcy commenced, the creditor may not sell or dispose of the goods or part with possession of them until the expiry of 30 days from, and including, the date when the creditor serves a post-possession notice (The notice states that the debtor is entitled to get back the repossessed property) on the bankruptcy trustee.

This is only the case if the creditor either took possession of the goods within the 21 days immediately before the time when the bankruptcy commenced, and after that time still possesses them or takes possession of the goods after that time[4]. The provision does not apply if the creditor, with the consent of the bankruptcy trustee, sells or parts with possession of the goods before the end of the 30 day period. Furthermore, a sale or disposal in contravention of what is provided in Sec 131 (1) is void as against the bankruptcy trustee.

Bankruptcy trustee’s powers

The bankruptcy trustee may, within the 30 day period referred to in Section 131, exercise any right conferred by any relevant written law to introduce a buyer for the goods and may also, at any time before the creditor sells or agrees to sell the goods under a power conferred by relevant laws or by the applicable credit purchase transaction, settle the bankrupt's obligations as debtor in accordance with that law or that transaction[5].

A creditor also has the power to prove[6] in a bankruptcy for the amount (not exceeding the amount limited by applicable written law) that the creditor was entitled to recover from the bankrupt as a debtor. This is only the case if this creditor has taken possession of consumer goods purchased under a credit purchase transaction (whether before or after the bankruptcy of the debtor); and the bankruptcy trustee has not acted under Section 133 in relation to the goods[7].

When the creditor has proved in a bankruptcy in the manner stated above, the creditor is further expected to submit with the creditor's claim form, the documents (if any) set by the insolvency regulations. Also, the bankruptcy trustee may exercise the rights conferred on the debtor by any relevant written law that applies after the creditor takes possession of goods in accordance with that specific law[8].

Creditor assigning goods to trustees

In the instance where the bankrupt purchased goods under a credit purchase transaction before the time the bankruptcy commenced and at that time the creditor had not taken possession of the goods or had taken possession, sold or disposed possession of them, the creditor may assign the goods to the bankruptcy trustee.

When the creditor does this, he/she may then prove in the bankruptcy for the net balance due to the creditor under the transaction.

In relation to goods that that are in the possession of the bankrupt under a credit purchase transaction, the Court has the power to make an order authorising the bankruptcy trustee to dispose of the goods as if all the rights of the owner under the contract or agreement were vested in the bankrupt. Such an order may be made only upon the application of the bankruptcy trustee and only if the Court is satisfied that disposal of the goods would be in the best interests of the bankrupt's creditors[9].

Condition to make order of Sec 163

The net proceeds of disposal of the goods and any additional money required to be added to the net proceeds so as to produce the amount determined by the Court, as the net amount that would be realised on a sale of the goods at market value, be applied towards discharging the amounts payable under the bailment contract or credit purchase transaction.

Companies and Credit Purchase Transactions

While a company is under administration (as provided under Sec 560), one has the power to take steps to repossess goods in the company’s possession under a credit-purchase transaction. This is only once the administrator or the court gives their approval.

The Court may also make an order authorising the administrator of a company to dispose of goods that are in the possession of the company under a credit purchase transaction as if all the rights of the owner under the agreement were vested in the company. Such an order may be made only on the application of the administrator if the Court believes that disposal of these goods would be likely to promote the purpose of administration of the company[10].

Effects of a moratorium[11]

Steps are set out in the Act to enforce any security over a company's property, or to repossess goods in the company's possession under a credit purchase transaction;

· Only with the approval of the Court; and

· If the Court gives approval-subject to such conditions as the Court may impose; and

· Other proceedings (including execution or other legal process) may be commenced or continued, and distress may be levied, against the company or its property

· Only with the approval of the Court; and

· If the Court gives approval-subject to such conditions as the Court may impose[12].

Furthermore, a company may dispose of goods that are in the possession of the company under a credit purchase transaction. as if all rights of the owner under the credit purchase transaction were vested in the company, but only if the owner of the goods consents or the Court gives its approval[13].

· A debtor who has applied for entry to the no-asset procedure (An alternative to filing for bankruptcy) shall not obtain credit (including credit under a credit purchase transaction), either alone or jointly with another person, of more than ten thousand shillings without first informing the credit provider that the debtor has applied for entry to the no-asset procedure.

PART III

Describe the duties of a bankrupt and the restrictions a bankrupt is subjected to during bankruptcy

This is provided for in the Act under division 14. The stated duties include;

i) A bankrupt shall, to the best of the bankrupt’s ability, assist in the realization of the bankrupt's property and the distribution of the proceeds among the creditors.

What this sub-section provides is the general duty of a bankrupt, this therefore means that a bankrupt is under the obligation to make sure that all his property is listed down in the financial statements for example, in order to ensure an equitable payment of his/her debts.

ii) The duty imposed by subsection (1) is in addition to any other duty imposed on the bankrupt by this Act or by any other written law.

The duty being referred to by this sub-section is the general duty. Hence, if any Act other than the Insolvency Act imposes a duty to a bankrupt, it is expected that the bankrupt shall comply with it.

iii) As soon as practicable after acquisition, the bankrupt shall notify the bankruptcy trustee of any property ;

(a) Was acquired by, or passed to, the bankrupt before discharge; and

(b) Is divisible among the creditors

This section in essence is providing for the disclosure of any property that the bankrupt has acquired before discharge. The reasoning behind this section if read together with subsection 2, is that the bankrupt is presumed to be buried in debt before being discharged. For that reason, he cannot acquire property and hide that fact and expect his debts to magically disappear. Hence, the fine (not exceeding 200 thousand shillings) and jail term (not exceeding 6 months) provided for under subsection 2 because the act of concealing that information amounts to a bankruptcy offence.

iv) On demand by the bankruptcy trustee, the bankrupt shall deliver to the bankruptcy trustee, or to a person authorized by the bankruptcy trustee to receive it, all of the bankrupt's property that-

(a) Is divisible among the creditors; and

(b) Is under the bankrupt's control.

The section above is restating the general duty whereby the bankrupt is under the duty to provide all his property for the purpose of the proceedings and this may be done on demand by the appointed trustee.

v) On demand by the bankruptcy trustee, the bankrupt shall deliver to the bankruptcy trustee, or to a person authorized by the bankruptcy trustee to receive it, all property that is acquired by, or passes to, the bankrupt before the bankrupt's discharge.

This goes back to the explanation given under point (iii). The only difference is that the trustee demands the bankrupt to provide the said property that was acquired before discharge.

vi) A bankrupt shall take all the steps (including the steps specified in subsection (4)) in relation to the bankrupt's property, and the distribution of the proceeds to the creditors, that are-

(a) Required by the bankruptcy trustee;

(b) Prescribed by the insolvency regulations for the purposes of this section;

(d) Directed to be done by the Court on an application by the bankruptcy trustee or a creditor.

The steps specified under subsection 4 include; transfers, power of attorney and other relevant documents. This means that if the trustee requires the certificates of title to his real property or the log book to the bankrupt’s car, the bankrupt shall take the necessary steps provided either by the court or trustee to ensure its delivery.

vii) A bankrupt who, without reasonable excuse, fails to comply with a requirement imposed by or under this section is guilty of contempt of the Court and is liable to be punished accordingly, in addition to any other punishment to which the bankrupt may be subject

Sub section 5 above provides that the failure to comply with the above section will amount an offence that is punishable and this punishment’s magnitude is under the court’s discretion.

viii) If;

(a) any property consisting of an interest in a dwelling house that is occupied by the bankrupt or by the bankrupt's spouse or former spouse is comprised in the bankrupt's estate; and

(b) the bankruptcy trustee is, for any reason, unable for the time being to realize that property, that trustee may apply to the Court for an order imposing a charge on the property for the benefit of the bankrupt's estate.

As noted from the other duties, the bankrupt’s property has to be divided by the trustee in order to compensate the creditors. Thus, if one of his property is occupied the trustee will ask the court to charge the property so as to determine its value. Once the court has heard the application as per section 143 (2), the court will impose a charge on any property;

(a) The benefit of that charge is included in the bankrupt's estate; and

(b) is enforceable up to the charged value from time to time, for the payment of any amount that is payable otherwise than to the bankrupt out of the estate and of interest on that amount at the rate prescribed by the insolvency regulations for the purposes of this section.

(3) In subsection (2), the charged value means- (a) the amount specified in the charging order as the value of the bankrupt's interest in the property at the date of the order; and

(b) Interest on that amount from the date of the charging order at the prescribed rate.

(4) In determining the value of an interest for the purposes of this section, the Court shall disregard any matter that it is required to disregard by the insolvency regulations.

(5) In making an order under this section in respect of property vested in the bankruptcy trustee, the Court shall provide, in accordance with the insolvency regulations, for the property-

(a) To cease to be included in the bankrupt's estate; and

(b) To vest in the bankrupt subject to the charge and any prior charge

Once the court has placed a charge on the property, the property ceases to belong to the bankrupt and thus vested on the trustee.

ix)

1. As soon as practicable after being adjudged bankrupt, the bankrupt shall- (a) deliver to the bankruptcy trustee relevant documents that are in the bankrupt's possession or control; and

b) Notify that trustee of relevant documents that are in the possession or control of any other person.

2. In subsection (1), "relevant documents" means all accounting records and other documents relating to the bankrupt's estate.

After being declared bankrupt, the bankrupt is expected to deliver all the necessary documents in his control or possession to the trustee and inform the trustee of any person in possession or control of other relevant documents if any.

xi) A bankrupt shall-

(a) As soon as practicable after being adjudged bankrupt-

(i) give the bankruptcy trustee a complete and accurate list of the bankrupt's property and of the bankrupt's creditors and debtors

(ii) give the bankruptcy trustee any other information relating to the bankrupt’s property that trustee requires;

(b) Attend before the bankruptcy trustee at all reasonable times whenever required by that trustee to so; and

The above section is straight forward and needs no further explanation.

xii) (l) A bankrupt shall, within seven days after any change occurs in the bankrupt's name, address, employment or income, notify the bankruptcy trustee of the change.

(2) A bankrupt who, without reasonable excuse, fails to comply with subsection (1) commits an offence and on conviction is liable to a fine not exceeding two hundred thousand shillings or to imprisonment for a term not exceeding six months, or to both.

This section deals with any change to the personal information of the bankrupt and the consequences of not informing the trustee of the said changes.

xiii) (1) The bankrupt shall give the bankruptcy trustee (or any person employed by the bankruptcy trustee) the information and details that are necessary to prepare a financial statement that shows the financial position of the bankrupt's estate.

(2) If required to do so by the bankruptcy trustee, the bankrupt shall, before the deadline, prepare and deliver to the bankruptcy trustee a full, true, and detailed financial statement that show;

(a) Details of the bankrupt's trading and stocktaking; and

(b) Details of the bankrupt's profit and losses during any period within the three years immediately preceding the date on which the bankruptcy commenced.

(3) To enable the bankrupt to prepare the financial statement referred to in subsection (2);

(a) The bankruptcy trustee shall give the bankrupt full access to the bankrupt's accounting records that are in the bankruptcy trustee's possession; and

(b) If the bankruptcy trustee believes it necessary to do so-that trustee shall provide the bankrupt with the assistance of a certified public accountant at the expense of the bankrupt's estate.

This section is outlining the bankrupt’s duty to disclose his financial statements before bankruptcy was declared and the financial position of his estate. According to sub sections 4 and 5, if the bankrupt fails to comply with section without reasonable cause will be said to have committed an offence and is liable to a fine (not exceeding two hundred thousand shillings) and jail term (not exceeding six months) or even both.

According to sub section 5 and 6, if the bankrupt after committing an offence under sub section 4 commits another, they shall be liable to a fine not exceeding 20 thousand shillings for each offence. Sub section 6 further provides that, the deadline is the expiration of the delivery of the necessary documents is 21 days after bankruptcy has commenced.

RESTRICTIONS PLACED ON THE BANKRUPT

This provision is found under Division 15 of the Insolvency Act. For purposes of understanding this division, I shall be keen on defining what a restriction is. According to the legal definition online, a restriction is a limitation of any activity by statute, regulation or contract provision.

With that in mind, the conditions provided in the Insolvency Act include;

a) If required by the bankruptcy trustee to do so, the bankrupt shall pay an amount or periodic amounts during the bankruptcy as a contribution towards payment of the bankrupt's debts.

This provision is simply stating that should the bankruptcy trustee deem it fit for the bankrupt to contribute towards the bankruptcy process; the bankrupt must comply with the requirement.

The bankruptcy trustee may impose conditions with respect to the payments, including conditions as the dates on which and the manner in which they are to be made, and may from time to time amend any such conditions or substitute new conditions for existing ones.

As stated above, the bankrupt will be required to pay a certain amount as a contribution to the bankruptcy process. Moreover, the payment of the said contribution will be made with certain conditions which include; i) the manner in which they shall be made and ii) the dates on which they shall be made.

The trustee is also given discretion with this provision to amend the conditions from time to time by substituting new conditions for the existing ones.

b) In deciding whether to require the bankrupt to make the payment or payments, the bankruptcy trustee shall-

i) Have regard to all the circumstances of the bankruptcy and the bankrupt's conduct, earning power, responsibilities, and prospects; and

ii) Make reasonable allowance for the maintenance of the bankrupt and the bankrupt's relatives and dependants.

c) If the bankrupt fails to comply with a requirement made under subsection (1), or with a condition imposed in respect of such a requirement under subsection (2), the bankruptcy trustee may make an application to the Court for an order under subsection (5).

This sub-section further states that, if the bankrupt fails to comply with the conditions prescribed by the trustee, the trustee will ask the court to make an order under sub section (5) to compel the bankrupt to pay the amount needed.

d) On the hearing of an application made to the Court by the bankruptcy trustee, the bankrupt, or a creditor, the Court may-

i) Amend, suspend, or cancel the bankrupt’s obligations to make payments under this section:

ii) Amend, suspend or discharge an order made under subsection (5); or

iii) Remit any arrears owing by the bankrupt.

e) Furthermore, section 151 provides that if the bankrupt fails to comply with section 150, he has the burden of proof in the proceedings instituted against him to show that the failure was/is not deliberate.

f) Another condition is; An undischarged bankrupt shall not, without the consent of the bankruptcy trustee or the Court (either directly or indirectly;

i) Enter into, carry of, or take part in the management or control of any business;

ii) Be employed by a relative of the bankrupt or

iii) Be employed by a company, trust, trustee, or incorporated body that is owned, managed, or controlled by a relative of the bankrupt.

What this provision is stating is that, the undischarged bankrupt is prohibited from conducting business unless stated otherwise by the court or trustee.

The contravention of the above section has its consequence as stated in sub section 2 as; a bankrupt who contravenes subsection (1) commits an offence and on conviction is liable to a fine not exceeding five hundred thousand shillings or to imprisonment for a term not exceeding two years, or to both.

g) If the court has a reasonable belief that the bankrupt has concealed some property in a specified place, it will issue a warrant to trustee or any other person to search that premises. This is found in section 151 (1).

Sub section 2 further provides that the search warrant will authorize the bankruptcy trustee or any other person;

1. to enter and search the place;

2. to seize and take possession of relevant property;

3. if necessary, to use force to enter the place (including by breaking open doors); and

4. to open any container found in the place, by force if necessary.

h) In section 154, the Act provides that once the warrant has been issued, the trustee or the Official Receiver and any of his assistants may;

1. may seize any part of the bankrupt’s property that is under the control of the bankrupt or of any other person; and

2. with a view to seizing the bankrupt’s property, may;

(i) break open any building or room of the bankrupt where the bankrupt is believed to be;

(ii) break open any building, room, or receptacle of the bankrupt where the bankrupt’s property is believed to be; and

(iii) seize and take possession of the bankrupt’s property found in the building, room, or receptacle.

This therefore means that they have the right to seize the bankrupt’s property.

i) Sub section 2 however, states that if the warrant is executed in the absence of the bankrupt, the warrant holder must leave in a prominent place at the searched place a notice that;

1. states the date and time when the warrant was executed; and

2. states the name of the person who executed it.

Sub section 3 thereafter provides that, in the absence of the bankrupt, the warrant holder shall leave in a prominent place in the searched place a list of all the property that has been seized.

However, sub section 3 becomes impractical if the bankrupt consents to the list of the seized goods if it is in accordance with sub section 5 which states that the bankrupt trustee shall leave a notice with the bankrupt who was present stating that;

(a) relevant property has been seized in the course of the search; and

(b) within seven days after the execution of the warrant, a list of the property seized will be delivered or sent to the bankrupt or left in a prominent position at the place searched.

And the person according to sub section 6 should sub section 5 apply, must ensure the delivery of the list of seized property within those 7 days or leave it at a prominent place in the searched premises.

j) According to section 155, the bankruptcy trustee may require the bankrupt’s relatives and bankrupt to vacate the land or building, if it is vested under the trustee.

If this demand is not complied with, the trustee may seek an order of possession of land or building from a competent court.

On hearing the application for an order of possession, the court may make the order of possession if it reasonably believes that the bankrupt and his relatives have no justification remaining there.

It should also be noted that the bankrupt or relatives entitled to the said land can appear and be heard as respondents in the hearing.

k) According section 156, the bankrupt has the right to inspect the documents of the trustee. And this is done at a reasonable time. These documents include;

(a) the bankrupt’s accounting records;

(b) the bankrupt’s answers to questions put to the bankrupt in the course of an examination under this Act;

€ the statement of the bankrupt’s financial position;

(d) all proofs ofdebt;

€ the minutes of any creditors’ meeting; and

(f) the record of any examination of the bankrupt.

l) After the bankruptcy commences, section 157 provides that; the bankrupt, and any person (other than the bankruptcy trustee) who claims through or under the bankrupt, ceases to be entitled-

(a) To recover property that is part of the bankrupt’s estate; or

(b) To give a release or discharge in relation to that property

The above section applies to sections 114 which is based on the transactions of property after bankruptcy, regardless of whether the trustee intervened or not.

l) After bankruptcy has commenced, the bankrupt is prohibited from taking steps to defeat beneficial interests of others in the bankrupt’s property. (section 158)

The above restriction applies;

a) both before and after the bankrupt obtains a discharge; and

b) (b)subject to sections 114 and 115 (transactions entered into in good faith).

m) Section 159 deals with instances where the bank is dealing with a bankrupt. This section provides that; As soon as practicable after becoming aware or forming s reasonable suspicion that a customer is an undischarged bankrupt, a bank shall;

a) notify the bankruptcy trustee of any account that the customer holds with the bank; and

b) Not pay any money from the account, unless subsection (2) applies.

(2) The bank may pay money out of the account if—

(a) The bank is authorized by an order of the Court or instructed by the bankruptcy trustee to do so; or

(b) The bank has notified the bankruptcy trustee of the account and has not, within one month after the notification, received any instructions from the bankruptcy trustee.

This therefore means that the bank is under the responsibility to inform the bankruptcy trustee of the bankrupt’s account.

Subsequently, the bank informs its customer that it has notified the bankruptcy trustee about their account, which is in accordance with sub section 1.

If the bank fails to comply with the sub sections 1 and 3 without a reasonable excuse, it will be liable for a offence that is punishable by a fine not exceeding 2 million shillings.

n) Section 160 provides that the Official Receiver, may, by notice require the bank to go through its account records by comparing the names of its customers with the names (including any aliases) of undischarged bankrupts specified in the notice or in a list that is attached to it.

The bank within 7 days after receiving the notice shall search its account records and provide the Official Receiver with written results of the search in so far as the search reveals the names of undischarged bankrupts specified in the notice or list.

If a bank fails to comply with subsection (2), the Official Receiver may make an application to the Court for an order under subsection (4).

On hearing the application made by the Official Receiver, the court may make an order under sub section 3, unless the Official Receiver was unjustified in directing the bank to comply with the requirement.

The bank is entitled to be served with a copy of the application and to appear and be heard as respondent at the hearing of the application.

PART IV

Consider the powers of bankruptcy trustees and the Court in examining a bankrupt and other necessary parties

Section 63 states the powers of the bankruptcy trustee as (consistent with Part 1 and Part 2 of the First Schedule):

To superintend the management of the bankrupt’s estate or any part of it
To carry on the bankrupt’s business (if any) for the benefit of the bankrupt’s creditors
To assist in the administering the estate in such terms as the bankruptcy trustee may direct

Section 63(5) states that in the case the bankruptcy trustee does anything without the approval or endorsement specified I sub section 1 and 2, the court or the creditors committee may ratify the bankruptcy trustee’s action provided it’s for the purpose of enabling the bankruptcy trustee’s expenses out of the bankrupt’s estate.

Dispose of the property comprised in the bankrupt’s estate to an associate of the bankrupt
Employ an advocate

In exercising the two, the bankruptcy trustee is to give notice to the committee of creditors.

Section 64 of the Insolvency Act gives the following powers to the bankruptcy trustees, which can be done without consulting with the first meeting of the creditors. The proceeds of the sale shall be spent according to section 64(1) and invested in according to section 66

Sell the property of the bankrupt if it perishable or is likely to rapidly diminish in value
Sell the property of the bankrupt, if in the trustee’s opinion, its sale could be prejudiced by delay
Or expenses would, in that trustee’s opinion, be incurred by the delay and, before sale, the bankruptcy trustee has consulted the creditors
Section 66, gives the bankruptcy trustee the power to bank money from the bankrupt’s estate and the power to invest the surplus money he gets in that capacity.
Section 67, if the court confers such a right and power to a bankruptcy trustee, assign a right to sue
Section 70, Bankruptcy trustee may apply for directions by the Court. However, the bankruptcy trustee is not protected by the court when they act over and above reasonable scope of powers and in cases of fraud and misrepresentation.

The powers of the court in examining the bankrupt

1. The court has the power to appoint a receiver/ bankruptcy trustee as per Section 39

2. Section 63(5) gives the court the powers to ratify the bankruptcy trustee when they act without following the procedure laid out in sub section 1 and 2

3. Section 68, the court may authorise the bankruptcy trustee to bring proceedings in the names of the bankruptcy trustee and the bankrupt’s partner

· Procedure

1. The bankruptcy trustee shall serve a notice of the application on the partner for authority to bring the proceedings, and the partner may oppose the application

2. partner may apply to the court for a direction that –

a) the partner is to be paid the proper share of the proceeds of the proceedings

b) the partner is to be indemnified by the bankruptcy trustee against any costs incurred in the proceedings on the condition that the partner does not claim any benefit from them

· any purported release by the partner of the debt or demand to which the proceedings relate is void

4. Section 427, the High court has the jurisdiction of hearing cases pertaining liquidation

5. Division 6 confers the powers to the court to hear any liquidation process

6. The court may issue a stay injuction as per section 30 of the Insolvency Act, while the underlying debt is determined

[1] i.word.com/idictionary/vest <accessed on 24^th October 2015>

[2] https://www.insolvencydirect.bis.gov.uk/casehelpmanual/D/DischargeFromBankruptcy.htm <accessed on 24th October 2015>

[3] agency.governmentjobs.com/lasvegas/default.cfm?action=viewclasspec&ClassSpecID=886253 <accessed on 24^th October 2015>

[4] Sec 132 (1) , Insolvency Act

[5] Sec 133 (1), Insolvency Act

[6] A proof of claim is a written statement that notifies the relevant court, the debtor, the trustee, and other interested parties that a creditor wishes to assert its right to receive a distribution (pay out) from the bankruptcy estate.

[7] Sec 134 (1), Insolvency Act

[8] Sec 134 (2), Insolvency Act

[9] Sec 163 (2) & (3), Insolvency Act

[10] Sec 589, Insolvency Act

[11] It is a suspension of activity or an authorized period of delay or waiting. It is sometimes agreed upon by the interested parties, or it may be authorized or imposed by operation of law. The term also is used to denote a period of time during which the law authorizes a delay in payment of debts or performance of some other legal obligation. This type of moratorium is most often invoked during times of distress, such as war or natural disaster.

[12] Sec 649, Insolvency Act

[13] Sec 657 (3), Insolvency Act

Nicco-Law

Sunday 3 January 2016

Status of a Bankrupt's Property acquired Bankruptcy, Kenyan Insolvency Law

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