BANKRUPTCY

OF NATURAL
PERSONS
EMMANUEL OTIENO OUMA
Grounds for an application for bankruptcy

a) Where a statutory demand has been served and the demand has not been satisfied
within twenty-one (21) days and the debt meets the following conditions:
• The debt is a liquidated debt
• The debt is not contested and
• The sum must be above the prescribed minimum
b) Where a judgment or decree has been served and it has not been satisfied or an
application has not been made to set it aside within twenty-one (21) days.
Grounds for bankruptcy cont’

c) Where the debtor is unable to pay his debts

d) For any other ground that the court may deem fit.
Grounds for bankruptcy cont’

• An application may be made by a person referred to in subsection (1)(a) or (b) only if the
debtor—
a) is domiciled in Kenya;
b) is personally present in Kenya on the date on which the application is made; or
c) at any time during the three years immediately preceding that date—
i. has been ordinarily resident, or has had a place of residence; or
ii. has carried on business in Kenya.
Who may apply for bankruptcy (S. 15)

a) The debtor
b) The creditor
c) Supervisor of Voluntary Arrangement
 I. Debtors Application

1. The debtor must issue a notice of intention to be adjudged bankrupt. The notice must be published in
a) a newspaper circulating within the region in which the debtor ordinarily resides; and
b) in such other publications (if any) as may be prescribed by the insolvency regulations.
2. The debtor will then file a Bankruptcy Petition in Form 10 set out in the First Schedule to the Regulations
which shall be accompanied by:
a) an affidavit to the petition which shall be in Form 8 set out in the First Schedule;
b) statement of debtor's financial position, which shall be called a “statement of affairs”, and shall be in Form 11
set out in the First Schedule; and
c) application for appointment of trustee which shall be in Form 9 of the First Schedule.
Debtors Application cont’

3. Once filed the Application shall be served on all the Creditor’s and the Official receiver.
4. The court will then hear and make a determination on the Application.
 II. Creditors’ Application

• One or more creditors of a debtor may make an application to the Court for a bankruptcy order if :
a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the prescribed
bankruptcy level (Kshs. 250,000) See Regulation 3.
b) the debt, or each of the debts, is for a liquidated amount payable to the applicant creditor, or one or more
of the applicant creditors, either immediately or at some certain, future time, and is unsecured;
c) the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay; and
d) there is no outstanding application to set aside a statutory demand in respect of the debt or any of the debts
Creditors’ Application cont’ – Inability to pay debt

A debtor is deemed unable to pay a debt if:

• the creditor has been served with a statutory demand and at least twenty-one days have
elapsed since the demand was served, and the demand has been neither complied with nor
set aside; or
• execution or other process issued in respect of the debt on a judgment or order of any court
in favour of the applicant, or one or more of the applicants to whom the debt is owed, has
been returned unsatisfied either wholly or in part.
Creditors’ Application cont’

• If the aforementioned conditions obtain the creditor will

1. The applicant shall the debtor with the statutory demand at least 21 days before filing the
petition (form 6 )
2. File the bankruptcy Petition in Form 3 set out in the First Schedule and shall be accompanied
by the following documents—
a) verifying affidavit which shall be in Form 4 set out in the First Schedule;
b) proof of the debt which shall be in Form 5 set out in the First Schedule; and
c) the application for appointment of trustee which shall be Form 9 of the First schedule.
III.Orders Of The Court

• Upon an application the court may make any of the following orders:
a) Allow the application and issue a bankruptcy order
b) Allow the application and convert into a creditor’s application (if it was a debtor’s
application)
c) Dismiss the application
d) Issue an order for alternatives to bankruptcy
e) Make any other order it considers just and fit.
 IV.Effects of a Bankruptcy Order

a) Stay of all proceedings for recovery of debt against the bankrupt

b) All property of the bankrupt vests in the bankruptcy trustee except:
i. The tools of trade
ii. Personal effects
iii. a motor vehicle not exceeding one million (in value).
c) The bankrupt cannot leave the jurisdiction without the approval of the trustee and the official receiver.
d) The bankrupt cannot enter into any new contract except for contracts for necessity without the approval of the
trustee.
 V. Implementation of the Bankruptcy Order

a) FIRST CREDITORS MEETING

The trustee will convene the first creditors meeting. During the meting, the following issues
will be discussed.
i. Whether the creditors will appoint a committee or act as a body of creditors
ii. Confirmation of the appointed trustee or appointment of a new trustee
iii. Registration of claims by creditors
 Implementation of the Bankruptcy Order cont’

b) PROOF OF DEBT
i. The trustee will prepare the statement of affairs of the company
ii. The creditors will then proof their debts . The trustee will only deal with provable debts.
iii. During this time, the bankrupt will also be examined as to the status of his affairs. The
examination is done under oath.
iv. At this stage, the trustee has power to summon anyone to testify and produce any
document that may be necessary
 VI.Realization of the Assets and Distribution

The assets of the bankrupt will be distributed as follows: (See Second Schedule )
i. Costs of the bankruptcy
ii. Payments to the employees
iii. Taxes
iv. Preferential creditors
v. Other unsecured creditors
vi. The bankrupt
 VII.Final report and discharge of the trustee

• At the end of the bankruptcy the trustee will prepare a final report and table it in a
creditor’s meeting. If the report is approved the creditor is discharged.
• If the report is not approved the trustee can make an application to court for the
appropriate orders
 VIII.How bankruptcy comes to an end

i. After lapse of three (3) years unless extended by court.

ii. Upon an application for early discharge
iii. By annulment for instance where the bankrupt concealed material facts .
 IX.Alternatives to bankruptcy

i. No asset procedure
ii. Summary installment order
iii. Individual Voluntary Arrangement
a) No Asset Procedure

• A person is eligible for a no asset procedure if:

• The debtor has no realizable assets
• The debtor has not previously been admitted to the no asset procedure
• The debtor has not been previously adjudged bankrupt
• The debtors tatal assets are not less than Kshs.1,000.00 and not more than
Kshs.4,000,000.00
• The debtor does not have any means to repay any amount towards the debt.
No Asset Procedure cont’

• NB.
• Once an order of No Asset Procedure has been issued it will have the same effect as a
Bankruptcy order except that it is supervised by the Official Receiver.
 b) Summary Installment Order

• Starts by the debtor preparing a proposal for payment of the debts owed to the creditor. The proposal will
also indicate the person proposed to be the supervisor.
• A creditors meeting is then convened for consideration of the proposal. If majority of the creditors approve
the proposal, they record it as a summary installment order which is registered with the official receiver.
• If the proposal is rejected, the debtor may make an application to court requiring the creditors to accept the
proposal and the court may either allow the application, reject the application, or issue a bankruptcy order
and appoint the proposed supervisor as the bankruptcy trustee.
 c) Individual Voluntary Arrangement

• A debtor may make a proposal to his creditors for composition. The Proposal must also indicate the name of
the insolvency practitioner proposed to be the supervisor.
• A creditor’s meeting is then convened to consider the proposal. (Requires approval of majority of the creditors) A
debtor’s proposal(with or without modifications) takes effect as a voluntary arrangement by the debtor on the day
after the date on which it is approved by the Court.
• On taking effect, the approved proposal binds the debtor and all the creditors who was entitled to vote at the
meeting or would have been so entitled if the person had received notice of the meeting, as if the person were a
party to the arrangement. The provisional supervisor thereafter becomes the supervisor of the arrangement.
Conclusion

• Please read on Bankruptcy and insolvency Offences