BANKRUPTCY & COMMERCIAL SECURITIES

Class Notes by T. Mweseli 2 U"i#e$sity o% Nai$obi !

&ISTORICAL RE'OLUTION O( BANKRUPTCY LA) 1. Bankruptcy Act Cap 53 Laws of Kenya 2. Ian Macneil Bankruptcy in East Africa 3. ri!"an Bankruptcy Law an! #ractice $. %&o"spson '.(. %&e principles of Bankruptcy Law 5. (ol!swort& on (istorical )e*elop"ent Basically t&e law of +ankruptcy &as a lon, &istory an! only a su""ary of t&e "ain !e*elop"ents "ay +e &i,&li,&te! Summary *+,2 A-t - ai"e! "ainly at securin, t&e property of t&e !e+tor for &is cre!itors. *./, A-t - e.ten!e! +ankruptcy law to non-tra!ers. /o"e lan!owners &a! +eco"e !e+tors an! &a! to +e catere! for +y t&e law. *.!0 A-t - to a"en! an! consoli!ate t&e e.istin, law was passe!. %&is Act containe! "any of t&e su+stanti*e +ankruptcy law principles w&ic& are now in operation to!ay an! +roa!ly seek to free t&e +ankrupt fro" any clai" or lia+ility e.cept personal torts. *../ A-t - lai! t&e +asis of "o!ern Bankruptcy a!"inistration 0 separate! t&e 1u!icial an! a!"inistrati*e functions. %&e 1u!icial functions re"aine! *este! in t&e (i,& Court an! County Courts w&ile t&e a!"inistrati*e functions were transferre! to a Boar! of %ra!e. It intro!uce! t&e present !ay law on t&e followin, 1. %&e public investigation +y t&e Court into t&e !e+tor2s con!uct3 2. Punishment for Bankruptcy offences co""itte! +y t&e +ankrupt3 3. /trict in*esti,ation an! pro*e of !e+t3 $. General supervision of procee!in,s inclu!in, t&e control of fun!s an! independent audits of trustees accounts. *.0 A-t lai! !own t&e conditions for the discharge of a bankrupt *0*/ A-t - "a!e offences by Bankrupts punishable summarily an! ti,&tene! t&e law as to t&eir criminal liability. *0*, A-t 1 Consoli!atin, Act of Bankruptcy le,islations *0*+ - %&e Bankruptcy 4ules of 15153 *02! - %&e Bankruptcy Amendment Act of 15263 1. In t&e En,lis& medieval and mercantilist periods t&e law co""ences wit& a statute enacte! !urin, t&e rei,n of Kin, (enry 7III w&ic& lar,ely !ealt wit& frau!ulent tra!ers. %&is le,islation was passe! in 15$2 an! it ai"e! "ainly at securin, t&e property of t&e !e+tor for &is cre!itors. It !i! not&in, to relie*e t&e !e+tor of &is o+li,ations if &is !e+ts e.cee!e! t&e *alue of &is property. If t&is occurre! t&e !e+tor re"aine! lia+le for t&e !e+t an! coul! e*en +e i"prisone!

for failure to repay. It s&oul! +e note! t&at t&e law was intro!uce! specifically to protect cre!itors. (owe*er8 eac& cre!itor procee!e! a,ainst t&e !e+tor in!i*i!ually an! t&e !e+tor2s property was ac9uire! on t&e principle of first co"e first ser*e!. 2. Early +ankruptcy law only applie! to tra!ers. It s&oul! +e recalle! t&at t&is was t&e "ercantilist free tra!e era of t&e 16t& an! 1:t& centuries. %&e tra!ers co"plaine! a,ainst t&e unfairness of t&e law +ut t&eir outcry for protection le! only to piece"eal refor"s an! a"en!"ents +ut t&e punis&"ent of !e+tors was not alle*iate! or "iti,ate! in any way. ;on-tra!ers w&o coul! not pay t&eir !e+ts were su+1ect to anot&er set of statutes relatin, to insol*ent !e+tors. In t&e 1<t& an! 15t& centuries t&ere was ,reat e.pansion in t&e a*aila+ility of cre!it. This was the era of the formation of Joint Stock ompanies w&ic& prece!e! t&e "o!ern li"ite! lia+ility co"panies. )e+tors were t&erefore on t&e increase. %&is is as a result of t&e &istorical !e*elop"ent of capitalis" as a "o!e of pro!uction w&ere co"petition is e"p&asise! cul"inatin, in "onopoly capitalis" &ence t&ose w&o cannot co"pete wit&in t&e syste" fallout an! "any +eco"e !e+tors. (owe*er8 it was !isco*ere! t&at people !o not +eco"e !e+tors of t&eir own free will. A distinction is sought to be made between dishonest debtors who should be punished and the honest but unfortunate ones who should somewhat be protected. In 1<3$ t&e +ankruptcy law was e.ten!e! to non-tra!ers. /o"e lan!owners &a! +eco"e !e+tors an! &a! to +e catere! for +y t&e law. In 1<65 an Act to a"en! an! consoli!ate t&e e.istin, law was passe!. %&is Act containe! "any of t&e su+stanti*e +ankruptcy law principles w&ic& are now in operation to!ay. %&e +roa! principle of t&e Act was t&at t&e Bankrupt s&oul! +e a free! person. (e s&oul! +e free! not only fro" &is !e+ts +ut also fro" e*ery possi+le clai" or lia+ility e.cept for personal torts co""itte! +y &i". =n t&e ot&er &an!8 all cre!itors were ,roupe! to,et&er for purposes of procee!in, a,ainst t&e !e+tor. %&e Act also pro*i!e! for t&e a!"inistration of +ankruptcy law an! "atters in t&e Lon!on Bankruptcy )istrict +y 'u!,es of t&e (i,& Court specially appointe! +y t&e Lor! C&ancellor an! in t&e Counties +y County Court 'u!,es. %&ere was no separation +etween t&e 1u!icial an! a!"inistrati*e functions +ot& of w&ic& were e.ercise! +y t&e court. %&e a!"inistration of +ankruptcy "atters un!er t&e 1<65 Act !i! not work well !ue to t&e lack of official control o*er t&e %rustees in Bankruptcy w&ic& was a new office create! +y t&e Act in t&e place of t&e for"er syste" of =fficial Assi,nees. In 1<<3 anot&er Act was passe! in En,lan! w&ic& repeale! t&e 1<65 Act an! a"en!e! an! consoli!ate! t&e law. %&is is t&e Act t&at lai! t&e +asis of "o!ern Bankruptcy a!"inistration. It separate! t&e 1u!icial an! a!"inistrati*e functions. %&e 1u!icial functions re"aine! *este! in t&e (i,& Court an! County Courts w&ile t&e a!"inistrati*e functions were transferre! to a Boar! of %ra!e. %&e 1<<3 Act also intro!uce! t&e present !ay law on t&e followin,

3.

$.

%&e pu+lic in*esti,ation +y t&e Court into t&e !e+tor2s con!uct3 #unis&"ent for Bankruptcy offences co""itte! +y t&e +ankrupt3 /trict in*esti,ation an! proof of !e+t3 >eneral super*ision of procee!in,s inclu!in, t&e control of fun!s an! in!epen!ent au!its of trustee2s accounts.

;o i"portant refor"s were intro!uce! +y t&e Bankruptcy Act of 1<5? an! t&e Bankruptcy an! )ee!s of Arran,e"ent Act of 1513. %&e "ain refor"s "a!e +y t&e 1<5? Act was in respect of t&e con!itions for t&e !isc&ar,e of a +ankrupt. %&e 1513 Act "a!e offences +y Bankrupts punis&a+le su""arily an! ti,&tene! t&e law as to t&eir cri"inal lia+ility. %&e present law of +ankruptcy in En,lan! is containe! in t&e followin,@1. 2. 3. $. %&e Bankruptcy Act of 151$ w&ic& was a consoli!atin, Act of Bankruptcy Le,islation3 %&e Bankruptcy 4ules of 15153 %&e Bankruptcy A"en!"ent Act of 15263 %&e 'u!icial )ecisions on t&e construction of t&ese statutes. (owe*er8 it is i"portant to note t&at t&ere &a*e +een su+se9uent !e*elop"ents in En,lan! cul"inatin, in t&e enact"ent of t&e 15<6 Insol*ency Act w&ic& contains all pro*isions relatin, not only to in!i*i!ual +ankruptcy +ut also corporate insol*ency. In Kenya8 Bankruptcy is ,o*erne! +y t&e Bankruptcy Act 153?8 t&e present C&apter 53 of t&e Laws of Kenya. 1. %&is Act is lar,ely i!entical to t&e En,lis& Bankruptcy Act of 151$ an! t&e Bankruptcy A"en!"ent Act of 1526. 2. %&e Bankruptcy 4ules are a,ain si"ilar to t&e En,lis& Bankruptcy 4ules of 1552 w&ic& !o not !iffer si,nificantly fro" t&e En,lis& +ankruptcy rules of 1515. 3. Le,islation !ealin, wit& 2ee3s o% A$$a"4e5e"t is a,ain patterne! on t&e En,lis& Act of 151$ an! t&is is t&e 2ee3s o% A$$a"4e5e"t A-t o% *0/ w&ic& is t&e current C&apter 5$ of t&e Laws of Kenya3 Bankruptcy ! "nsolvency Bankruptcy is t&e le4al stat6s o% a" i"3i#i36al a4ai"st w7o5 a" a3863i-atio" o$3e$ 7as bee" 5a3e by t7e -o6$t 9$i5a$ily be-a6se o% 7is i"ability to 5eet 7is %i"a"-ial liabilities. An A!1u!ication =r!er in Bankruptcy is a 863i-ial 3e-la$atio" t7at t7e 3ebto$ is i"sol#e"t an! it &as t&e effect of i"posin, certain !isa+ilities upon &i" an! of !i*estin, &i" of &is property for t&e +enefit of &is cre!itors. Bankruptcy "ust +e !istin,uis&e! fro" insol*ency w&ic& "ay +e !efine! as t&e i"ability o% a 3ebto$ to 9ay 7is 3ebts as a"3 w7e" t7ey %all 36e . A&et&er or not a person is insol*ent is purely a 9uestion of fact t&us a person can +e insol*ent wit&out +ein, +ankrupt +ut &e cannot +e +ankrupt wit&out +ein, insol*ent. 3

%o!ay we talk of Insol*ency Law +ecause of t&e !e*elop"ents t&at &a*e taken place w&ic& &a*e unifie! personal +ankruptcy an! corporate insol*ency. Kenya still operates two syste"s i.e. 1. #ersonal +ankruptcy w&ic& relates to in!i*i!uals an! partners&ips 2. Corporate insol*ency w&ic& relates to co"panies +ein, woun! up OB:ECTS O( BANKRUPTCY LA)S %&e t&ree "ain o+1ects of Bankruptcy Laws wit&in t&e co""on law 1uris!iction &a*e +een i!entifie! as follows@ 1. 2. 3. %o secure a" e;6itable 3ist$ib6tio" o% t7e 9$o9e$ty o% t7e 3ebto$ a5o"4 7is -$e3ito$s accor!in, to t&eir respecti*e ri,&ts a,ainst &i"3 %o $elie#e t7e 3ebto$ o% 7is liability to &is cre!itors an! to ena+le &i" to "ake a fres& start in life free fro" t&e +ur!en of &is !e+ts an! o+li,ations3 %o 9$ote-t t7e i"te$ests of t&e cre!itors an! t&e pu+lic +y pro*i!in, for t&e i"#esti4atio" o% t7e -o"36-t o% t7e 3ebto$ in &is affairs an! for t&e i"position of punis&"ent w&ere t&ere &as +een frau! or ot&er "iscon!uct on &is part.

#rofessor ri!"an in &is +ook Bankruptcy Law an! #ractice &as ,i*en so"e reasons for t&e ,rowt& of Bankruptcy. (e says8 B%&e alle*iation of t&e pli,&t of t&e !e+tor +y a "ore "erciful t&ou,& ri,orous pro*ision of Bankruptcy Law &as se*eral causes CaD %&e rise in i"portance of tra!in, on cre!it an! t&e nee! to encoura,e suc& tra!in, for co""ercial purposes t&us increasin, c&ances for financial e"+arrass"ent for tra!ers w&ic& woul! "ake tra!in, "ore !ifficult if t&e &ars&ness of t&e ol!er law of !e+t still re"aine! in force3 C+D %&e c&an,e in outlook of society towar!s t&ose w&o fail to pay t&eir !e+ts fro" re,ar!in, t&e" as cri"inals to lookin, at t&e" only as unfortunate3 %&e nee! to protect cre!itors +y ,i*in, t&e" so"e relief t&ou,& not as ,reat as t&ey are 1ustly entitle! to e.pect rat&er t&an punis&in, t&e !e+tor3 %&e +enefit to t&e co""unity as a w&ole in t&at @ CiD CiiD %&e cre!itors s&oul! ,et so"et&in, rat&er t&an lose all if t&e !e+tor coul! escape wit& t&e assets &e &as or is i"prisone! so as to +e una+le to o+tain any assets in t&e future an! In t&at an opportunity is affor!e! to t&e !e+tor to "ake a fres& start.

CcD

C!D

#rofessor ri!"an t&us asserts t&at t&e "o!ern law of +ankruptcy is a co"pro"ise w&ic& is inten!e! to +enefit all t&e parties.

BASIC PRINCIPLES UN2ERLYIN< T&E LA) 1. %&e )e+tor "ust surren!er all &is properties to t&e cre!itors3 2. After pay"ent of a percenta,e of &is lia+ilities8 t&e !e+tor "ay o+tain a full !isc&ar,e fro" &is past !e+t3 3. %&e cre!itors "ay ,rant a !e+tor a !isc&ar,e e*en w&ere t&e !e+tor pays t&e" less t&an w&at is prescri+e! +y t&e law3 $. %&e court is t&e ar+itrator in all "atters relatin, to t&e Bankruptcy3 5. =nce !isc&ar,e!8 a !e+tor is free! fro" &is financial o+li,ations an! re*erts to &is for"er status in society. PROCEE2IN<S IN BANKRUPTCY %&e procee!in,s in +ankruptcy are +e,un +y t&e presentation to t&e court of a Bankruptcy #etition. %&is petition asks t&e court for a 4ecei*in, =r!er to +e "a!e in respect of a !e+tor2s property. %&e petition "ay +e presente! eit&er +y t&e )e+tor &i"self or +y a Cre!itor. If it is presente! +y a cre!itor t&e petition "ust +e foun!e! or +ase! on an alle,e! act of Bankruptcy w&ic& &as occurre! wit&in 3 "ont&s +efore t&e presentation of t&e petition. In!ee! t&e acts of Bankruptcy are in effect stat6to$y tests o% i"sol#e"-y. If it is t&e !e+tor &i"self w&o presents t&e petition t&at in itself constitutes an act of +ankruptcy. Epon &earin, t&e petition t&e court "ay !is"iss it8 if it &as no "erit or "ake a recei*in, or!er if it is foun! to +e wit& "erit. %&is or!er !oes not "ake t&e !e+tor +ankrupt all it !oes is to place &is property in safe custo!y pen!in, t&e outco"e of t&e procee!in,s. %&e first "eetin, of cre!itors is t&en &el! at w&ic& it is !eter"ine! w&et&er a co"position or sc&e"e of arran,e"ent if one is su+"itte! +y t&e !e+tor s&all +e accepte! or w&et&er application s&all +e "a!e to t&e court to a!1u!icate t&e !e+tor2s +ankruptcy. If t&e court !eci!es to a!1u!icate t&e !e+tor +ankrupt it "akes an A!1u!ication =r!er an! t&e !e+tor will t&en +eco"e +ankrupt. %&e !e+tor2s property will t&en *est in &is trustee in +ankruptcy w&o will collect t&e property an! !istri+ute it a"on, t&ose cre!itors w&o &a*e pro*e! t&eir !e+ts. %&e +ankrupt "ust also su+"it &i"self to a 'u!icial #u+lic E.a"ination an! at any ti"e after conclusion of t&is pu+lic e.a"ination t&e +ankrupt can apply for &is )isc&ar,e. If t&e court "akes an or!er of !isc&ar,e t&e +ankrupt is release! fro" all &is !e+ts wit& certain e.ceptions pro*a+le in +ankruptcy an! is free! fro" !isa+ilities a,ainst so"e e.ceptions w&ic& were i"pose! upon &i" +y t&e +ankruptcy. )&O IS A CRE2ITOR & )&O IS A 2EBTOR A cre!itor is a"y 9e$so" w7o is e"title3 to e"%o$-e 9ay5e"t o% a 3ebt at law o$ i" e;6ity. %&e BA /ection 3C2D !efines w&o a !e+tor is. BA !e+tor inclu!es a"y 9e$so" w7et7e$ 3o5i-ile3 i" Ke"ya o$ "ot w7o at t7e ti5e w7e" a"y a-t o% Ba"=$69t-y was 3o"e o$ s6%%e$e3 by 7i5 CaD C+D CcD Aas personally present in Kenya3 or =r!inarily resi!e! or &a! a place of resi!ence in Kenya3 or Aas carryin, on +usiness in Kenya personally or +y "eans of an a,ent or "ana,er or

C!D

Aas a "e"+er of a fir" or partners&ip w&ic& carrie! on +usiness in Kenya an! inclu!es a person a,ainst w&o" +ankruptcy procee!in,s &a*e +een institute! in a reciprocatin, territory an! w&o &as property in Kenya

)&O MAY BE A2:U2<E2 BANKRUPT 1. Infants >enerally apart fro" contracts for necessaries8 infants are not lia+le in respect of !e+ts t&at t&ey &a*e incurre!. /ee3 4e )a*enport F1513G 2 All E.4. <5? 4e A )e+tor F155?G C&. 2<2 But if an infant frau!ulently contracts a !e+t !urin, &is infancy &e will +e &el! lia+le for t&e !e+t an! t&e cre!itor "ay clai" in +ankruptcy on &is ac9uirin, t&e a,e of "a1ority. %&is is as per t&e I"%a"ts Relie% A-t of En,lan! 1<:$8 w&ic& is a statute of ,eneral application to Kenya. 2. Insane #ersons %&ese are also su+1ect to +ankruptcy procee!in,s. >enerally persons of unsoun! "in! cannot +e a!1u!icate! +ankrupt wit&out t&e court2s consent. 4efer to t&e Bankruptcy 4ule 2$:. 3. Marrie! Ao"en Se-tio" **> of t&e BA pro*i!es t&at e*ery "arrie! wo"an s&all +e su+1ect to t&e law relatin, to +ankruptcy as if s&e were Hfemme sole# $. Aliens 0 #ersons )o"icile! A+roa! %&ey are also su+1ect to +ankruptcy procee!in,s as of Se-tio" !?*@ ?3@ of t&e B A if wit&in a year +efore t&e !ate of presentation of t&e petition &as or!inarily resi!e! or &a! a !wellin, &ouse or place of +usiness or &as carrie! on +usiness in Kenya personally or +y "eans of an a,ent or "ana,er or is or wit&in t&at perio! &as +een a "e"+er of a fir" or partners&ip of persons w&ic& &as carrie! on +usiness in Kenya +y "eans of a partner or partners or an a,ent or "ana,er. 5. Co"paniesICorporations Bankruptcy procee!in,s are not applica+le to co"panies in Kenya. %&ese are specifically !ealt wit& un!er li9ui!ation an! win!in, up pro*isions of t&e Co59a"ies A-t Cap $<6. Se-tio" **. of t&e BA pro*i!es t&at a B4ecei*in, =r!er s&all not +e "a!e a,ainst any corporation or a,ainst any association or co"pany re,istere! un!er t&e Co"panies Act or any enact"ent repeale! +y t&at Act.J %&e position in En,lan! &as +een refor"e! +y t&e I"sol#e"-y A-t. 6. #artners&ips A&et&er t&e partners&ip is ,eneral or li"ite!8 it is su+1ect to t&e pro*isions of t&e Bankruptcy Act. Se-tio" **0 t&ereof states as follows Bsu+1ect to suc& "o!ifications as "ay +e "a!e +y rules un!er /ection 122 t&is Act s&all apply to li"ite! partners&ips in t&e

sa"e "anner as if li"ite! partners&ips were or!inary partners&ips an! on all t&e ,eneral partners of a li"ite! partners&ip. Bein, a!1u!,e! +ankrupt t&e assets of t&e li"ite! partners&ip s&all *est in t&e %rustee in Bankruptcy. :. )ecease! #ersons %&ere is a pro*ision for a!"inistration in +ankruptcy of t&e estate of a !ecease! person un!er Se-tio" *2* ?*@ of t&e BA. Se-tio" * > BA also ena+les procee!in,s alrea!y co""ence! to continue as if t&e !e+tor were ali*e. A&ere t&e !e+tor is !ea! a petition "ay +e presente! +y &is personal representati*e w&en its purpose is to o+tain an a35i"ist$atio" o$3e$. <. 'u!,"ent )e+tor %&e BA !oes not pre*ent an un!isc&ar,e! +ankrupt fro" creatin, *ali! !e+ts an! since &e "ay co""it an act of +ankruptcy8 institution of su+se9uent +ankruptcy procee!in,s +efore &e is !isc&ar,e! fro" a prior +ankruptcy is per"issi+le. T&E ACTS O( BANKRUPTCY %&ese are +asically co*ere! un!er Se-tio" /?*@ BA. +ankruptcy in eac& of t&e followin, cases@1. A !e+tor co""its an act of

Con*eyin, or assi,nin, all property to a %rustee for t&e +enefit of &is cre!itors ,enerally3 Se-tio" /?*@ ?a@ pro*i!es t&at if in Kenya or elsew&ere a !e+tor "akes a con*eyance or assi,n"ent of &is property to a trustee or trustees for t&e +enefit of &is cre!itors ,enerally8 &e co""its an act of +ankruptcy. %o constitute an act of Bankruptcy &earin, t&ere "ust +e a con*eyance or an assi,n"ent of t&e w&ole or su+stantially t&e w&ole of t&e !e+tor2s property. 4efer to 4e /pack"an C1<5?D 2$ KB) 12<. %&e assi,n"ent "ust +e for t&e +enefit of all cre!itors ,enerally an! not 1ust a class of cre!itors. 4efer to 4e Me,&1i ;at&oo C156?D E.A. 56? A cre!itor w&o &as reco,nise! a )ee! of Arran,e"ent w&erein a !e+tor &as a,ree! on a plan of repayin, t&e !e+t cannot rely on t&at )ee! as an act of +ankruptcy. 4efer to 4e A )e+tor C1535D 2 All E.4. 33< rau!ulent Con*eyance wit&in t&e "eanin, of /ection 3C1DC+D If a !e+tor "akes a frau!ulent con*eyance ,ift8 !eli*ery or transfer of &is property or any part t&ereof &e co""its an act of +ankruptcy. En!er t&e BA a con*eyance is frau!ulent i% it -o"%e$s o" o"e -$e3ito$ a" a3#a"ta4e w7i-7 7e wo6l3 "ot 7a#e 6"3e$ t7e Ba"=$69t-y Laws o$ w7i-7 te"3s to 3e%eat o$ 3elay -$e3ito$s i$$es9e-ti#e o% w7et7e$ t7e 3ebto$ 7a3 a"y 3is7o"est i"te"tio" alt&ou,& t&is "ay +e present. %&e transaction "ay +e Ba con*eyance8 ,ift8 !eli*ery or transferJ of property an! t&is inclu!es "ort,a,es or ple!,es as well as actual con*eyances an! assi,n"ents. %&e con*eyance nee! not +e for t&e +enefit of any cre!itor an! suc& transfers are fre9uently "a!e for e.a"ple to a "e"+er of t&e !e+tor2s fa"ily. %&e con*eyance nee! not +e of t&e w&ole of t&e !e+tor2s property. %&e principles for !eter"inin, w&et&er a con*eyance is frau!ulent un!er t&e Bankruptcy Act "ay +e su""arise! as follows@ -

2.

i.

A&ere a !e+tor transfers all or *irtually all &is assets in pay"ent of an antece!ent !e+t Cpre*iously incurre!D wit&out recei*in, any present return for t&e" t&is necessarily !efeats or !elays &is ot&er cre!itors an! is a frau!ulent con*eyance e*en w&en t&e transaction is &onestly entere! into3 A&ere a !e+tor transfers all &is assets for a full present consi!eration t&is is not per se a frau!ulent con*eyance since t&e effect is "erely to c&an,e t&e nature of t&e property to w&ic& t&e cre!itor look for satisfaction +ut a frau!ulent intent for e.a"ple to a+scon! wit& t&e procee!s of t&e sale coul! +e pro*e! if it is in fact e.iste! or it "i,&t +e s&own t&at t&at so calle! sale was a s&a" !esi,ne! to turn a cre!itor fro" an unsecure! into a secure! cre!itor at t&e e.pense of ot&er cre!itors an! in t&is latter case t&at will +e frau!ulent. A&ere a !e+tor transfers part of &is assets in pay"ent of an antece!ent !e+t8 t&e frau!ulent intent "ust +e pro*e! an! t&is will !epen! on se*eral factors@ A&et&er or not t&ere is sufficient property re"ainin, after t&e transfer to ena+le t&e !e+tor to continue in +usiness an! t&us satisfy &is ot&er cre!itors3 /econ!ly t&is will !epen! upon w&et&er t&e !e+tor is insol*ent or not at t&e ti"e an!3 Lastly it will !epen! upon w&et&er or not t&e con*eyance &as t&e effect of lea*in, &i" insol*ent. A&ere a !e+tor "ort,a,es or ot&erwise c&ar,es all &is property to secure an antece!ent !e+t8 t&is is conclusi*ely presu"e! frau!ulent as a,ainst t&e ot&er cre!itors. rau!ulent preference wit&in t&e "eanin, of /ection 3 C1D CcD of t&e BA as rea! wit& /ection $5C1D@ If in Kenya or elsew&ere &e "akes any con*eyance or transfer of &is property or any part t&ereof or creates any c&ar,e t&ereon w&ic& woul! un!er t&e BA or any ot&er Act +e *oi! as a frau!ulent preference if &e were a!1u!,e! +ankrupt8 t&is constitutes an act of Bankruptcy an! +asically un!er /ection $5C1D it is pro*i!e! as follows@ BE*ery con*eyance or transfer of property or c&ar,e t&ereon "a!e8 e*ery pay"ent "a!e8 e*ery o+li,ation incurre! an! e*ery procee!in, taken or suffere! +y any person unable to pay his debts as they become due from his own money in fa*our of any cre!itor wit& a *iew of ,i*in, suc& cre!itor or any surety or ,uarantor for t&e !e+t !ue to suc& a cre!itor a preference over the other creditors is !ee"e! to +e frau!ulent an! is *oi! as a,ainst a trustee in +ankruptcy8 if t&e person effectin, t&e transaction is a!1u!,e! +ankrupt on a petition presente! wit&in 6 "ont&s after t&e !ate of t&e transaction.

ii.

iii.

i*.

3.

$.

Lea*in, Kenya8 keepin, &ouse 0 si"ilar acts

<

BA Se-tio" /?*@ ?3@ is yet anot&er act of +ankruptcy w&ic& pro*i!es t&at if a !e+tor !eparts fro" Kenya or if out of Kenya re"ains outsi!e Kenya or !eparts fro" a !wellin, &ouse or ot&erwise a+sents &i"self or +e,ins to keep &ouse8 all t&ose will constitute acts of +ankruptcy. In or!er to esta+lis& t&ese particular acts of +ankruptcy t&e cre!itor "ust pro*e t&at it was t&e !e+tor2s intention to !efeat or !elay &is cre!itors +ut it is not necessary to s&ow t&at any cre!itor was actually !efeate!. %&e intent "ay +e presu"e! if it is a natural conse9uence of t&e !e+tor2s act t&at t&e cre!itors will +e !efeate! or !elaye!. 4efer to t&e case of 4e Co&en C155?? 2 All E4 36 %&is act of +ankruptcy &as 3 li"+s@ a. )epartin, fro" or re"ainin, out of Kenya 8 w&ere a person !o"icile! in Kenya lea*es t&e country after +ein, presse! for pay"ent +y &is cre!itors8 t&ere is a stron, presu"ption t&at &is intention is to !efeat cre!itors. (owe*er8 t&is is not so if &e &as a per"anent resi!ence a+roa! at w&ic& &e re"ains or if a person !o"icile! a+roa! lea*es Kenya to return to t&e country of &is !o"icile. 4efer to E. parte Bran!on C1<<$D 25 C&. ) 5?? +. )epartin, fro" a !wellin, &ouse or ot&erwise a+sentin, oneself. %&e a+sentin, "ust +e fro" t&e debtors place of business or usual abode or fro" one or "ore particular cre!itors elsew&ere. It is an act of +ankruptcy un!er t&is &ea! if a !e+tor &a*in, "a!e an appoint"ent to "eet a cre!itor at a particular place fails to atten! to t&e appoint"ent wit& intent to !efeat it. 4efer to t&e case of 4e Aorsley C15?1D K.B. 3?5 - &ere w&ere a "arrie! wo"an left &er place of +usiness wit&out payin, &er cre!itors or notifyin, &er c&an,e of a!!ress8 t&is was &el! to +e an act of +ankruptcy alt&ou,& s&e left at &er &us+an!2s re9uest to li*e wit& &i" elsew&ere. c. Be,innin, to keep &ouse. A !e+tor keeps &ouse if &e refuses to allow &is cre!itors to see &i" or retires to so"e re"ote part of &is &ouse or +usiness pre"ises w&ere t&ey cannot ,ain access to &i". It "ust +e s&own t&at so"e cre!itor &as +een !enie! an inter*iew in t&is way +ut t&e cre!itor "ust seek t&e !e+tor at a reasona+le &our. 5. Le*yin, e.ecution a,ainst ,oo!s Se-tio" /?*@?e@ of t&e Bankruptcy Act states8 where a $udgment against a debtor remains unsatisfied8 t&e 1u!,"ent cre!itor will usually seek to enforce it +y le*yin, e.ecution on t&e !e+tor2s ,oo!s. %&is will constitute an act of +ankruptcy a*aila+le to any ot&er cre!itor if t&e 4oo3s a$e sol3 by t7e Baili%% o$ $etai"e3 by t7e5 %o$ 2* 3ays eA-l63i"4 t7e 3ate o% seiB6$e . %&e petition foun!e! on t&is act "ust +e presente! wit&in 3 "ont&s t&ereof. 4efer to t&e case of 4e Beeston C1<55D 1 KB 626. %&e Bailiff is in possession for t&e purpose of t&is section w&ere un!er a Hwalkin, possession2 a,ree"ent &e wit&!raws &is officer upon t&e !e+tor2s acknowle!,in, t&at t&e ,oo!s &a*e +een seiLe! an! allows t&e !e+tor to continue nor"al tra!in, in t&e ,oo!s pro*i!e!

t&at a li"it is i"pose! on t&e *alue of t&e ,oo!s w&ic& can +e !ealt wit& in t&is way +y t&e !e+tor. 4efer to t&e case of 4e )alton C1563D C&. 336. If a 3r! party "akes a clai" to any of t&e ,oo!s seiLe!8 t&e +ailiff "ust take out an i"te$ 9lea3e$ s655o"s to !eter"ine t&e owners&ip of t&e ,oo!s. %&e perio! occupie! in !ealin, wit& t&ese su""ons is not to +e counte! in t&e 21 !ays. 6. )eclaration of ina+ility to pay !e+ts B A Se-tio" / ?*@ ?%@ as rea! wit& Bankruptcy 4ules 5<. (ere a for"al !eclaration +y t&e !e+tor t&at &e is una+le to pay &is !e+ts or a +ankruptcy petition presente! a,ainst &i"self t&e latter +ein, t&e "ost co""on constitutes an act of +ankruptcy upon !eli*ery of t&e !ocu"ent to t&e proper official of t&e court. A !eclaration of ina+ility to pay !e+t is re9uire! to +e in (o$5 No. 2 of t&e Bankruptcy 4ules w&ile a !eclaration of +ankruptcy F!e+tor2sG petition is re9uire! to +e in (o$5 No. / of t&e Bankruptcy 4ules. Bankruptcy notice Se-tio" , as rea! wit& Se-tio" /?*@ ?4@ of t&e BA. (ere if t&e !e+tor fails to co"ply wit& t&e pro*isions of a +ankruptcy notice8 wit7i" > 3ays8 &e co""its an act of +ankruptcy. A +ankruptcy notice is a notice issue! +y t&e court an! ser*e! on t&e 1u!,"ent !e+tor -alli"4 69o" t7e 3ebto$ to 9ay t7e a5o6"t o% t7e 86345e"t 3ebt o$ else satis%y t7e -o6$t t7at 7e 7as a -o6"te$C-lai5D setC o%% o$ -$ossC3e5a"3 w7i-7 e;6als o$ eA-ee3s t7e a5o6"t o% t7e 86345e"t 3ebt an! w&ic& t&e !e+tor coul! not set up in t&e action in w&ic& t&e 1u!,"ent was o+taine!. A +ankruptcy notice "ust +e prece!e! +y a re%uest of issue of the notice an! t&is is in or" ;o. $ of t&e Bankruptcy 4ules. A +ankruptcy notice "ust +e in t&e prescri+e! for" an! "ust state t&e conse9uences of non-co"pliance. It can only +e issue! at t&e instance of a cre!itor w&o &as o+taine! a final 1u!,"ent in a Kenyan court or forei,n court w&ere t&ere is reciprocity. %&e prescri+e! for" of a bankruptcy notice is (o$5 No. + un!er t&e Bankruptcy 4ules. %&e perio! of : !ays for co"pliance applies w&ere t&e notice is ser*e! in Kenya. If ser*e! a+roa! t&e court will fi. t&e ti"e for pay"ent in or!er to ,i*e lea*e to ser*e it a+roa!. %&e notice "ust re9uire pay"ent to +e "a!e in e.act accor!ance wit& t&e ter"s of t&e 1u!,"ent. %&erefore if +y a,ree"ent wit& a cre!itor pay"ent is to +e "a!e +y instal"ents8 a notice cannot issue on t&e failure to pay one instal"ent for t&e w&ole of t&e unpai! +alance unless it was pro*i!e! +ut t&e w&ole +alance s&oul! +eco"e !ue on failure to pay any instal"ent. If a portion of t&e 1u!,"ent !e+t &as +een pai!8 t&ere not +ein, any a,ree"ent to take pay"ent +y instal"ents8 t&e +ankruptcy notice "ust issue for t&e +alance unpai! an! not for t&e w&ole !e+t. But a +ankruptcy notice will not +e in*ali!ate! +y reason only t&at t&e su"s specifie! in t&e notice as the amount due e&ceeds the amount actually due unless t&e !e+tor wit&in t&e ti"e allowe! for pay"ent ,i*es notice to t&e cre!itor t&at &e !isputes t&e *ali!ity of t&e notice on t&e ,roun! of suc& "isstate"ent. If t&e !e+tor !oes not ,i*e suc& notice &e is !ee"e! to &a*e co"plie! wit& t&e +ankruptcy notice if wit&in t&e ti"e allowe! &e takes suc&

:.

1?

steps as woul! &a*e constitute! a co"pliance wit& t&e notice &a! t&e actual a"ount !ue +een correctly specifie! t&erein. It s&oul! +e note! t&at two separate 1u!,"ent !e+ts cannot +e inclu!e! in one notice. A +ankruptcy notice cannot +e issue! if e.ecution on t&e 1u!,"ent-!e+t &as +een staye!. %&e !e+tor after ser*ice of t&e notice "ay seek to &a*e it set asi!e if &e &as a counter-clai"8 set-off or cross-!e"an! w&ic& e9uals or e.cee!s t&e a"ount of t&e 1u!,"ent !e+t an! w&ic& &e coul! not &a*e set up in t&e action on w&ic& t&e 1u!,"ent was o+taine! or for any ot&er reasons. If t&e !e+tor !oes not successfully c&allen,e t&e notice or !oes not pay t&e !e+t or pro*i!e satisfactory security for it wit&in t&e specifie! ti"e &e co""its an act of +ankruptcy w&ic& is a*aila+le not only to t&e cre!itors issuin, t&e notice +ut to any ot&er cre!itor pro*i!e! t&at &e o+tains an affi!a*it of non-co"pliance fro" t&e cre!itor issuin, t&e notice. <. >i*in, notice to cre!itors of suspension or intention to suspen! !e+ts Se-tio" /?*@ ?7@ BA pro*i!es t&at a state"ent +y a !e+tor t&at &e &as suspen!e! or is a+out to suspen! pay"ent of &is !e+ts nee!s no particular for"ality +ut t&e notice "ust +e ,i*en in suc& a "anner as to s&ow t&at &is intention was to give information that he has suspended or was about to suspend payment . %&at will constitute an act of +ankruptcy for e.a"ple notice of suspension &as +een inferre! w&ere a tra!er su""one! a "eetin, of &is cre!itors wit& a *iew to proposin, a co"position. 4efer to t&e case of Crook 7. Morley F1<51G A.C. 316. It &as also +een inferre! w&ere a !e+tor "a!e a *er+al state"ent to t&e "ana,in, clerk of t&e solicitors actin, on +e&alf of &is cre!itors t&at &e was una+le to pay &is !e+ts. 4e a !e+tor F1525G 1 C&. 362. A notice ,i*en Bwit&out pre1u!iceJ &as +een &el! to +e a!"issi+le as proof of t&e acts of +ankruptcy in 4e )aintrey F1<53G 2 K.B. 116.

PROCE2URE O( A2:U2ICATION 1. #E%I%I=; Bankruptcy procee!in,s are co""ence! +y t&e presentation of a petition +y t&e !e+tor &i"self or +y a cre!itor a,ainst t&e !e+tor. %&is is in accor!ance wit& t&e pro*isions of Se-tio" + of t&e BA. 'i( Petition by the debtor against himself) En!er Se-tio" .?*@ o% t7e Ba"=$69t-y A-t as $ea3 wit7 Ba"=$69t-y R6les * + a !e+tor "ay present &is own petition. %&e filin, of w&ic& is !ee"e! to +e an act of +ankruptcy. %&e petition "ust state t&at t&e !e+tor is una+le to pay &is !e+t an! "ust re9uest t&at a recei*in, or!er or an a!1u!ication or!er +e "a!e. %&e for" w&ic& it "ust co"ply wit& is or" ;o.3 un!er t&e Bankruptcy 4ules. A recei*in, or!er is "a!e at once wit&out any &earin, in accor!ance wit& B4 125. An a!1u!ication or!er "ay also +e "a!e at once. %&ereafter8 t&e !e+tor "ust file wit& t&e official recei*er a state"ent of affairs prepare! in accor!ance wit& t&e pro*isions of /ection 16 of t&e BA.

1. 2. 3. $.

11

5.

%&e petition "ust furt&er co"ply wit& t&e pro*isions of B4 1?6 to 1?<. A !e+tor2s petition s&all not after presentation +e wit&!rawn wit&out lea*e of t&e court.

'ii( Petition by the creditor As note!8 any person entitle! to enforce pay"ent of a !e+t at law or e9uity "ay +e a petitionin, cre!itor. A cre!itor "ay petition if t&e followin, con!itions are satisfie! un!er se-tio" !?*@ BA an! t&e BR ** @ ?a@ T7e a5o6"t owe3 is "ot less t7a" E+ o$ Ks7s. * as %iAe3 6"3e$ t7e E"4lis7 Ba"=$69t-y A-t o% *0*,F ?i" UK "ow t7e a-t6al a5o6"t is E>+ @ ?b@ ?-@ ?3@ T7e 3ebt is a li;6i3ate3 s65 9ayable eit7e$ i55e3iately o$ at so5e -e$tai" %6t6$e ti5eF T7e a-t o% ba"=$69t-y o" w7i-7 t7e 9etitio" is 4$o6"3e3 7as o--6$$e3 wit7i" / 5o"t7s be%o$e t7e 9$ese"tatio" o% t7e 9etitio"F T7e 3ebto$ is 3o5i-ile3 i" Ke"ya o$ wit7i" a yea$ be%o$e t7e 3ate o% t7e 9$ese"tatio" o$ t7e 9etitio" 7as o$3i"a$ily $esi3e3 o$ 7a3 a 3welli"4 7o6se o$ a 9la-e o% $esi3e"-e i" Ke"ya o$ 7as -a$$ie3 o" b6si"ess i" Ke"ya 9e$so"ally o$ by 5ea"s o% a" a4e"t o$ 5a"a4e$ o$ is o$ wit7i" t7at 9e$io3 7as bee" a 5e5be$ o% a %i$5 o$ 9a$t"e$s7i9 o% 9e$so"s w7i-7 7as -a$$ie3 o" b6si"ess i" Ke"ya by 5ea"s o% a 9a$t"e$ o$ 9a$t"e$s o$ a" a4e"t o$ 5a"a4e$.

%&e !e+t !ue to t&e petitionin, cre!itor "ust &a*e e.iste! as a li9ui!ate! su" i.e. a fi.e! su" or one capa+le of +ein, co"pute! wit& certainty at t&e !ate of t&e act of +ankruptcy. It is not sufficient t&at t&e !e+t s&oul! &a*e +eco"e li9ui!ate! at t&e !ate of presentation of t&e petition if it &a! in fact +een un-li9ui!ate! at t&e earlier !ate. 4efer to 4e )e+tors F152:G 1. C&. 15 an! Mo&a""e! 7. Lo+o F1553G EACA 11:. 2. %(E (EA4I;> = %(E #E%I%I=; En!er t&e BR *2+?*@ w&ere a petition is file! +y a !e+tor8 t&e court s&all fort&wit& "ake a recei*in, or!er t&ereof. En!er t&e BR *2+?2@8 t&e &earin, of a cre!itor2s petition takes place after t&e e.piration of . 3ays fro" t&e !ate of ser*ice t&ereof on t&e !e+tor +ut a &earin, wit&in t&e < !ays "ay +e or!ere!8 w&ere t&e !e+tor &as file! a !eclaration of ina+ility to pay &is !e+ts or w&ere t&e !e+tor &as a+scon!e! or for any ,oo! cause s&own. =pposition +y t&e !e+tor3 En!er BR *2.8 if t&e !e+tor wis&es to oppose t&e petition &e "ust file a notice wit& t&e re,istrar of t&e court specifyin, t&e state"ents in t&e petition w&ic& &e !enies. urt&er &e "ust also sen! a copy of t&e notice to t&e petitionin, cre!itorCsD 3 !ays prior to t&e !ate of t&e &earin,. At t&e &earin, set +y t&e re,istrar un!er BR *2! t&e petitionin, cre!itor "ust pro*e@ *# The debt# +# Service of the petition on the debtor#

12

,# The act of bankruptcy being relied on %&ereupon t&e court "ay "ake a recei*in, or!er as per section 5 BA for t&e protection of t&e Estate. )I/MI//AL = %(E #E%I%I=; 1. If t&e court is not satisfie! wit& proof of any of t&ese "atters or is satisfie! +y t&e !e+tor t&at &e is a+le to pay &is !e+t or t&at for ot&er sufficient cause no or!er ou,&t to +e "a!e it "ay !is"iss t&e petition un!er Se-tio" > ?/D of t&e BA. 2. If t&e Act of +ankruptcy w&ic& is +ein, relie! upon is non-co"pliant wit& a +ankruptcy notice t&e court "ay if it t&inks fit stay or !is"iss t&e petition if an appeal is pen!in, fro" t&e 1u!,"ent or or!er. Se-tio" >?,@ as rea! wit& >?+@ BA. %&e court "ay also stay all proceedings on the petition if the debtor denies indebtedness to t&e petitioner or t&e a"ount of t&e !e+t until t&at &as +een !eter"ine!. A&ere procee!in,s are staye! t&e court "ay if +y reason of t&e !elay cause! +y t&e stay of procee!in,s or for any ot&er cause it t&inks 1ust "ake a recei*in, or!er on t&e petition of so"e ot&er cre!itor an! s&all t&ereupon !is"iss on suc& ter"s as it t&inks fit t&e petition in w&ic& procee!in,s &a*e +een staye!. A cre!itor cannot rely upon an act of +ankruptcy co""itte! +efore &is !e+t ca"e into e.istence +ut t&e !e+t nee! not &a*e +een !ue to t&e petitionin, cre!itor at t&e !ate of t&e act of +ankruptcy. A petition once presente! cannot +e wit&!rawn wit&out lea*e of t&e court. 3. A##=I;%ME;% = I;%E4IM 4ECEI7E4@ BA Se-tio" * . At any ti"e after t&e presentation of t&e petition an! +efore a recei*in, or!er is "a!e t&e court "ay if it is s&own to +e necessary for t&e protection of t&e estate appoint t&e official recei*er to +e interi" recei*er of t&e property. %&e official recei*er "ay &i"self appoint a special "ana,er to con!uct t&e +usiness of t&e !e+tor. %&e court "ay also stay any action e.ecution or ot&er le,al process a,ainst t&e property or person of t&e !e+tor. 4efer to B4 115 %= 12$. %(E 4ECEI7I;> =4)E4@ Se-tio" 0 of t&e BA as rea! wit& BR */. to *,. If t&e court !oes not !is"iss or stay t&e petition8 it will "ake a recei*in, or!er. Epon t&e "akin, of t&e recei*in, or!er8 t&e official recei*er +eco"es recei*er of t&e !e+tor2s property. %&ereafter no le,al procee!in,s "ay +e +rou,&t of t&e !e+ts pro*a+le in t&e +ankruptcy e.cept +y lea*e of t&e court. =nce t&e official recei*er steps in no procee!in,s can +e +rou,&t a,ainst t&e !e+tor e.cept wit& t&e lea*e of t&e court. %&is &owe*er !oes not pre1u!ice a secure! cre!itor2s ri,&ts to !eal wit& &is security accor!in, to /ection 5C2D as rea! wit& /ection 6C2D BA. %&e recei*in, or!er !oes not "ake t&e !e+tor +ankrupt. It also 3oes "ot 3e9$i#e 7i5 o% t7e ow"e$s7i9 o% 7is 9$o9e$ty. It is

$.

13

o"ly t7e 9ossessio" a"3 -o"t$ol o% 7is 9$o9e$ty t7at a$e ta=e" away %$o5 7i5. %&us any transactions su+se9uently entere! into +y t&e !e+tor are pri"a facie in*ali! w&et&er or not t&e ot&er party to t&e transaction &a!I&as notice of t&e recei*in, or!er. %&e notice of t&e recei*in, or!er statin, t&e na"e a!!ress an! !escription of t&e !e+tor8 t&e !ate of t&e or!er8 t&e courts +y w&ic& t&e or!er was "a!e an! t&e !ate of t&e petition "ust +e pu+lis&e! in t&e Kenya >aLette an! one of t&e local !aily papers. Se-tio" */ of t&e BA as rea! wit& BR *,+. %&e pro!uction of a copy of t&e >aLette containin, any notice of t&e recei*in, or!er is conclusive evidence t&at t&e or!er was !uly "a!e on t&e state! !ate. E*en after t&e "akin, of t&e recei*in, or!er t&e 3ebto$ 5ay a99ly %o$ its $es-issio" in accor!ance wit& BR *,> to *,.. 5. )EB%=42 /%A%EME;% = A AI4/@ Epon t&e "akin, of a recei*in, or!er t&e !e+tor "ust atten! a pri*ate inter*iew to !eter"ine &ow t&e Estate s&oul! +e a!"inistere! an! to recei*e instructions as to t&e preparation of &is state"ent of affairs. %&e !e+tor "ust su+"it &is state"ent of affairs to t&e official recei*er wit&in 3 !ays of t&e recei*in, or!er if t&e or!er is "a!e on t&e !e+tor2s own petition or wit&in 1$ !ays if t&e or!er is "a!e on t&e cre!itor2s petition. %i"e "ay +e e.ten!e! +y t&e court or official recei*er on application of t&e !e+tor. BA *!?*@ & BR *,0 to *+ . %&e state"ent of affairs "ust +e in t&e prescri+e! for" verified by affidavit an! "ust s&ow t&e followin,@ %&e particulars of t&e !e+tor2s assets8 !e+ts an! lia+ilities3 %&e na"es8 resi!encies an! occupations of t&e cre!itors3 %&e securities if any &el! +y t&e" respecti*ely an! t&e !ates w&en t&ey were ,i*en an! /uc& furt&er or ot&er infor"ation as "ay +e prescri+e! or as t&e official recei*er "ay re9uire. En!er Se-tio" *!?/@ BA if t&e debtor fails without reasonable e&cuse to comply with these re%uirements- the court may on the application of the official receiver or of any creditor ad$udge him bankrupt. Any person statin, &i"self in writin, to +e a cre!itor of t&e +ankrupt "ay personally or +y a,ent inspect t&e state"ents of affairs at all reasona+le ti"es an! take a copy t&ereof. But if any person untrut&fully states t&at &e is a cre!itor8 t&en &e s&all +e ,uilty of conte"pt of court an! +e punis&e! accor!in,ly on t&e application of t&e trustee in +ankruptcy or t&e official recei*er. 6. %(E I4/% MEE%I;> = C4E)I%=4/@ It is pro*i!e! un!er se-tio" *, a"3 *+ of t&e BA as rea! wit& t&e first sc&e!ule to t&e BA. As soon as "ay +e after t&e "akin, of t&e recei*in, or!er a,ainst a !e+tor a ,eneral "eetin, of &is cre!itors referre! to as t&e first "eetin, s&all +e &el! for t&e purpose of consi!erin, w&et&er a proposal for a -o59ositio" o$ s-7e5e o% a$$a"4e5e"t s&all +e accepte! or w&et&er it is

CaD C+D CcD C!D

1$

e.pe!ient t&at t&e !e+tor s&all +e a!1u!,e! +ankrupt an! ,enerally as to t&e "o!e of !ealin, wit& a !e+tor2s property wit& respect to t&e su""onin, of an! procee!in,s at t&e first an! ot&er "eetin,s of cre!itors t&e rules in t&e first sc&e!ule to t&e BA apply. %&e official recei*er "ust su""on t&e first "eetin, of cre!itors not later t&an 6? !ays after t&e !ate of t&e recei*in, or!er. (e "ust ,i*e not less t&an ! -lea$ 3ays notice of t&e ti"e an! place in t&e Kenya >aLette an! in a local !aily paper. urt&er"ore &e "ust sen! a note to eac& cre!itor "entione! in t&e state"ent of affairs. %o,et&er wit& t&is notice &e "ust also sen! a su""ary of t&e state"ent of affairs wit& co""ents w&ic& &e "ay wis& to "ake as well as a for" of proof if a co"position or sc&e"e of arran,e"ent is to +e consi!ere! at t&e "eetin,8 &e "ust also sen! a copy of t&e sc&e"e an! &is re"arks t&ereof. ;otice "ust also +e sent to t&e !e+tor to atten! t&e "eetin,. %&e official recei*er or &is no"inee c&airs t&e "eetin,. All cre!itors "ay atten! +ut a cre!itor w&o &as not pre*iously lo!,e! proof of &is !e+t "ay not *ote at t&e "eetin,. %&e purpose of t&e "eetin, is to !eci!e w&et&er t&e !e+tor s&oul! +e a!1u!,e! +ankrupt or w&et&er any co"position or sc&e"e w&ic& &e "ay &a*e su+"itte! s&oul! +e accepte! an! in t&e for"er case t&e cre!itors "ay appoint a trustee an! a co""ittee of inspection. :. C=M#=/I%I=; =4 /C(EME = A44A;>EME;% %&is is pro*i!e! for un!er se-tio" *. BA an! BR *! C*!0. A co"position is an a$$a"4e5e"t betwee" two o$ 5o$e 9e$so"s %o$ t7e 9ay5e"t o% o"e to t7e ot7e$s o% a s65 o% 5o"ey i" satis%a-tio" o% a" obli4atio" to 9ay a"ot7e$ s65 3i%%e$i"4 eit7e$ i" a5o6"t o$ 5o3e o% 9ay5e"t. A sc&e"e of arran,e"ent is a 9$o9osal %o$ 3eali"4 wit7 7is 3ebts by a" i"sol#e"t 3ebto$ by a99lyi"4 7is assets o$ i"-o5e i" 9$o9o$tio"ate 9ay5e"t o% t7e5 w&ic& proposal if a,ree! +y &is cre!itors or t&e re9uisite "a1ority of t&e". %&erefore t&e sc&e"e or co"position is on t&e !e+tor2s initiati*e. If t&e !e+tor wis&es to "ake a proposal for a co"position or for a sc&e"e of arran,e"ent of &is affairs t&en t&e pro*isions of se-tio" *. BA co"e into operation@ (e "ust lo!,e &is proposal wit& an official recei*er wit&in $ !ays of su+"ittin, &is state"ent of affairs or wit&in suc& furt&er ti"e as t&e official recei*er "ay allow. %&e proposal "ust +e in writin, an! si,ne! +y t&e !e+tor. %&e official recei*er "ust su""on a "eetin, of cre!itors +efore t&e pu+lic e.a"ination of t&e !e+tor is conclu!e! an! sen! to eac& cre!itor +efore t&e "eetin, a copy of t&e !e+tor2s proposal wit& &is report attac&e! t&ereto. %&e proposal "ust +e appro*e! +y a "a1ority in nu"+er an! t7$eeC;6a$te$s in *alue of all t&e cre!itors w&o &a*e pro*e! t&eir !e+ts. Cre!itors "ay *ote +y letter in t&e prescri+e! for" a!!resse! to t&e official recei*er so as to +e recei*e! +y &i" not later t&an t&e !ay prece!in, t&e "eetin,. Cre!itors w&o !o not *ote are re,ar!e! as *otin, a,ainst t&e resolution of t&e proposal of sc&e"e of arran,e"ent.

1. 2. 3.

15

$.

%&e !e+tor "ay at t&e "eetin, a"en! t&e ter"s of &is proposal if t&e a"en!"ent is in t&e opinion of t&e official recei*er calculate! to +enefit t&e ,eneral +o!y of cre!itors. 5. After t&e proposal is accepte! +y t&e cre!itors it "ust +e appro*e! +y t&e court. Eit&er t&e !e+tor or t&e official recei*er "ay apply to t&e court to appro*e it an! t&ree !ays notice of t&e ti"e appointe! for &earin, t&e application "ust +e ,i*en to eac& cre!itor w&o &as pro*e! &is !e+ts. 6. %&e application cannot +e &ear! until after t&e conclusion of t&e pu+lic e.a"ination of t&e !e+tor. Before appro*in, t&e proposal t&e court "ust &ear t&e report of t&e official recei*er as to its ter"s an! t&e con!uct of t&e !e+tor an! any o+1ections w&ic& "ay +e "a!e +y or on +e&alf of any cre!itor. A cre!itor "ay oppose t&e application not wit&stan!in, t&at &e *ote! for its acceptance at t&e "eetin, of cre!itors. :. %&e court "ust refuse to appro*e t&e proposal in t&e followin, cases@ CaD if in its opinion t&e ter"s of t&e proposal are unreasona+le or not for t&e be"e%it of t&e ,eneral +o!y of cre!itors. C+D If any %a-ts are pro*e! w&ic& woul! re9uire t&e court eit&er to refuse8 suspen! or attac& con!itions to t&e !isc&ar,e of t&e !e+tor were &e to +e a!1u!,e! +ankrupt unless t&e sc&e"e pro*i!es reasona+le security for t&e pay"ent of not less t&an /&s 5 in t&e poun! on all t&e unsecure! !e+ts pro*a+le in t&e +ankruptcy CcD If pro*ision is not "a!e for t&e pay"ent of t&e 9$e%e$e"tial 3ebt in priority to all ot&er !e+ts <. In any ot&er case8 t&e court "ay eit&er appro*e or refuse to appro*e t&e proposal. 5. =nce a co"position or sc&e"e is appro*e! +y t&e court it is +in!in, on all cre!itors w&ose !e+t are pro*e! wit& t&e e.ception unless t&e cre!itor accepts t&e proposal of t&ose !e+ts fro" w&ic& t&e !e+tor will not +e release! +y an or!er of !isc&ar,e. Se-tio" *0 BA. 1?. If t&e sc&e"e is appro*e!8 t&e $e-ei#i"4 o$3e$ is $es-i"3e3 an! su+1ect to pay"ent of t&e official recei*er2s costs8 t&e !e+tor or t&e trustee un!er t&e sc&e"e is put in possession of t&e property. 11. %&e s-7e5e 5ay be a""6lle3 in t&e followin, cases@ CiD If 3e%a6lt is "a!e in pay"ents of any instal"ents !ue un!er t&e sc&e"e3 or CiiD If it appears to t&e court t&at t&e sc&e"e cannot in conse9uence of le,al !ifficulties or for any sufficient cause procee! wit&out i"86sti-e or un!ue !elay to t&e cre!itors or t&e !e+tor3 or CiiiD If t&e consent of t&e court was o+taine! +y %$a63. If t&e sc&e"e is annulle! t&e court "ay a!1u!,e t&e !e+tor +ankrupt +ut any !ispositions or pay"ents "a!e un!er t&e sc&e"e re"ain *ali!. %&e cre!itors "ay also accept a proposal for a co"position or sc&e"e at any ti"e after a!1u!ication. %&e proce!ure is t&e sa"e as in t&e case of a co"position or sc&e"e accepte! +efore a!1u!ication an! upon approving the scheme the court may annul the ad$udication order. A&ere t&e a!1u!ication is annulle! any assets

16

re"ainin, after pay"ents to t&e cre!itors of t&e a"ount owe! t&e" un!er t&e sc&e"e in respect of w&ic& no or!er &as +een "a!e re*erts in t&e !e+tor. <. #EBLIC EMAMI;A%I=; = %(E )EB%=4@ Se-tio" *> BA as rea! wit& BR *+*C*+0. A&ere a receiving order has been made the official receiver applies to the court for the appointment of a time and place for the public e&amination of t&e !e+tor. %&e e.a"ination "ust +e &el! as soon as is con*enient after t&e e.piration of t&e ti"e for t&e su+"ission of t&e !e+tor2s state"ent of affairs. %&e court "ay a!1ourn it fro" ti"e to ti"e. %&e official recei*er "ust notify t&e !e+tor an! cre!itors of t&e ti"e an! place of t&e e.a"ination an! "ust a!*ertise t&e or!er in t&e Kenya >aLette an! in a local !aily. %&e pu+lic e.a"ination "ay +e !ispense! wit& un!er t&e pro*isions of section 1:C11D BA w&ere t&e !e+tor suffers fro" any mental or physical affliction or disability w&ic& "akes &i" unfit to atten! or where a composition or scheme has been proposed +y 1oint !e+tors an! one of t&e 1oint !e+tors is una*oi!a+ly pre*ente! fro" atten!in, +ecause of illness or a+sence fro" Kenya. If t&e !e+tor fails wit&out sufficient cause to atten! t&e e.a"ination t&e court "ay issue a warrant for &is arrest un!er BR *,2. In t&is case an! also if t&e !e+tor fails to !isclose &is affairs or co"ply wit& an or!er of court in relation to &is affairs t&e court "ay a!1ourn t&e e.a"ination sine !ie Cin!efinitelyD. "t may then ad$udge the debtor bankrupt forthwith and he will be unable to obtain discharge until he can obtain an order of the court for the e&amination to be continued. Any cre!itor w&o &as lo!,e! proof of &is !e+t or &is representati*e aut&oriLe! in writin, "ay put 9uestions to t&e !e+tor concernin, &is affairs an! t&e causes of &is failure. %&e official recei*er or trustee if one &as +een appointe! an! t&e court take part in t&e e.a"ination an! put 9uestions to t&e !e+tor. %&e !e+tor2s a!*ocate "ay also atten! t&e e.a"ination +ut not ask any 9uestions or a!!ress t&e court. %&e !e+tor is e.a"ine! on oat& an! "ust answer all 9uestions w&ic& t&e court "ay put or allow to +e put to &i". .otes of the e&amination are taken down in writing an! after +ein, rea! o*er to or +y t&e !e+tor an! si,ne! +y &i" may be used in evidence a,ainst &i" in ot&er procee!in,s. %&ese notes are open to e.a"ination +y t&e cre!itors2 at all reasona+le ti"es. A&en t&e court is of t&e opinion t&at t&e affairs of t&e !e+tor &a*e +een sufficiently in*esti,ate! it "akes an or!er !eclarin, t&at t&e e.a"ination is conclu!e! +ut t&e or!er cannot +e "a!e until after t&e !ay appointe! for t&e first "eetin, of cre!itors. T7e 9owe$ to a$$est t7e 3ebto$ En!er se-tio" 2! BA t&e court "ay or!er t&e arrest of t&e !e+tor an! t&e seiLure of any +ooks8 papers or ,oo!s in &is possession in t&e followin, circu"stances@ 1. If after a +ankruptcy notice &as +een issue! or after a petition &as +een presente! +y or a,ainst &i"8 t&ere is a pro+a+ly reason for +elie*in, t&at &e has absconded

1:

2.

3. $.

or is about to abscond with a view to avoiding payment of the debt in respect of which the bankruptcy notice was issued or avoiding service of a bankruptcy petition or attending an e&amination or otherwise delaying or embarrassing the proceedings against him %&e !e+tor "ay also +e arreste! if after presentation of a petition by or against him there is cause to believe that he is about to remove his goods with a view of preventing or delaying possession being taken of them by the official receiver or trustee or that there is ground for believing that he has concealed or he is about to conceal or destroy any of his goods or any books- documents or writings which might be of use to his creditors If after ser*ice of a petition or t&e "akin, of a recei*in, or!er he removes any goods in his possession above the value of five pounds without the leave of the official receiver or trustee If wit&out ,oo! cause s&own he fails to attend any e&amination ordered by the court# It s&oul! +e note! t&at no arrest is *ali! upon a +ankruptcy notice unless t&e notice is ser*a+le upon t&e !e+tor +efore or at t&e ti"e of &is arrest.

T&E A2:U2ICATION OR2ER 4eference "ay +e "a!e to t&e BA Se-tio" 2 an! BR *. 1 *.+. CaD %&e >roun!s for Makin, an A!1u!ication =r!er A&en a recei*in, or!er &as +een "a!e t&e official recei*er or any cre!itor "ay apply to t&e court to a!1u!,e t&e !e+tor +ankrupt. %&e court "ay a!1u!,e t&e !e+tor +ankrupt in t&e followin, cases@ 1. If t&e cre!itors at t&eir first "eetin, or at any a!1ourn"ent t&ereof so resol*e +y or!inary resolution3 2. If t&ey pass no resolution3 3. If t&ey !o not "eet at all3 $. If a co"position or sc&e"e is not appro*e! wit&in 1$ !ays after t&e conclusion of t&e pu+lic e.a"ination of t&e !e+tor or suc& furt&er ti"e as t&e court "ay allow32 5. If t&e !e+tor applies to +e "a!e Bankrupt3 6. If a 9uoru" of cre!itors &as not atten!e! t&e first "eetin, of cre!itors or one a!1ourn"ent t&ereof3 :. If t&e court is satisfie! t&at t&e !e+tor &as a+scon!e! or !oes not inten! to propose a co"position or sc&e"e3 <. If t&e pu+lic e.a"ination is a!1ourne! sine !ie3 5. If t&e !e+tor wit&out reasona+le cause fails to su+"it &is state"ent of affairs3 1?. If a co"position or sc&e"e is annulle! +y t&e court. Epon t&e "akin, of an a!1u!ication or!er8 notice t&ereof "ust +e ,aLette! an! a!*ertise! in a local paper.

1<

C+D Annul"ent of t&e A!1u!ication =r!er@ %&is is can*asse! un!er se-tio" // BA. %&e a!1u!ication or!er "ay +e annulle! in t&e followin, cases@ *# +# ,# "f in the opinion of the court the debtor ought not to have been ad$udged bankrupt/ "f his debts are paid in full/ "f a composition or scheme is accepted by the creditors and approved by the court/

%&e court &as a !iscretion as to annullin, t&e a!1u!ication or!er an! "ay !o so w&ere t&e +ankrupt &as co""itte! +ankruptcy offences e*en if t&e !e+ts are pai! in full. (ere a *oluntarily lease +y a cre!itor is not e9ui*alent to pay"ent in full +y t&e !e+tor. En!er /ection 33C+D any !e+ts !ispute! +y t&e !e+tor is consi!ere! as pai! in full if &e enters into a +on! in suc& su" an! wit& suc& sureties as t&e court appro*es to pay t&e a"ount to +e reco*ere! in any procee!in,s for its reco*ery wit& costs. Also any debts due to a creditor who cannot be found or cannot be identified is considered as paid in full if pai! into court. It s&oul! +e note! t&at t&e annul"ent of an a!1u!ication or!er does not affect the validity of any sales or dispositions of property or payments or other acts properly done by the official receiver- trustee or any person acting under their authority or by the court. %&e property of t&e !e+tor *ests in suc& a person as t&e court !irects or failin, suc& !irection8 re*erts to t&e !e+tor on suc& ter"s as t&e court "ay or!er. %&e annul"ent of an a!1u!ication or!er releases t&e !e+tor fro" t&e personal !isa+ilities i"pose! upon &i" +y t&e +ankruptcy +ut it !oes not pre*ent cri"inal procee!in,s fro" +ein, +rou,&t a,ainst t&e !e+tor for co""ission of Bankruptcy offences. 2ISABILITIES O( A BANKRUPT Epon a!1u!ication t&e +ankrupt +eco"es su+1ect to t&e followin, !isa+ilities@ 1. 2. All property +elon,in, to &i" inclu!in, property ac9uire! +y &i" prior to &is !isc&ar,e *ests in t&e trustee in Bankruptcy for !istri+ution a"on, &is cre!itors3 (e "ust not eit&er alone or 1ointly wit& any ot&er person o+tain cre!it to t&e e.tent of 1?? s&illin,s or upwar!s fro" any person wit&out infor"in, t&at person t&at &e is an un!isc&ar,e! +ankrupt3 /ection 135 CaD BA3 (e "ust not en,a,e in any tra!e or +usiness un!er a na"e ot&er t&an t&at un!er w&ic& &e was a!1u!icate! +ankrupt wit&out !isclosin, to all persons wit& w&o" &e enters into any +usiness transactions t&e na"e un!er w&ic& &e was a!1u!icate!3 /ection 135 C+D of t&e BA3 En!er /ection 1<< of t&e Co"panies Act &e cannot act as a !irector of a co"pany or !irectly or in!irectly take part in t&e "ana,e"ent of a co"pany e.cept +y lea*e of t&e court +y w&ic& &e was a!1u!,e! +ankrupt8 w&ic& lea*e t&e official recei*er "ay o+1ect to3

3.

$.

15

5. 6.

(e cannot act as a recei*er or "ana,er of t&e property of a co"pany on +e&alf of t&e !e+enture &ol!ers e.cept un!er appoint"ent "a!e +y or!er of t&e court3 En!er /ection 35 C1D C!D of t&e current Constitution a +ankrupt is !is9ualifie! fro" +ein, a "e"+er of parlia"ent or a "e"+er of a local aut&ority an! if electe! &e will &a*e to relin9uis& &is seat3 (e cannot act as an a!*ocate un!er /ection 32 of t&e A!*ocates Act Cap 16 of t&e Laws of Kenya.

:.

2ISC&AR<E O( A BANKRUPT Application for Discharge: Se-tio" 20 BA an! BR *.! to *0>. %&e Bankrupt can apply for &is !isc&ar,e at any ti"e after a!1u!ication but the application cannot be heard until after the public e&amination is concluded# The registrar of the court must give +0 days notice of the time and place of the 1earing to the official receiver and the Trustee# The official receiver must forthwith send notice thereof for ga2etting and must give *3 days notice or the 1earing to every creditor. At t&e &earin, of t&e application w&ic& is &el! in open court the official receiver submits a report as to the bankrupts conduct during the proceedings of his bankruptcy# A copy of this report must be forwarded to the bankrupt not less than 4 days before the hearing an! if t&e +ankrupt wis&es to !ispute any state"ent t&erein8 &e "ust notify t&e official recei*er of t&is fact not less t&an 2 !ays +efore t&e &earin,. A cre!itor w&o wis&es to oppose t&e !isc&ar,e on any ,roun! ot&er t&an t&ose "entione! in t&e official recei*er2s report "ust not less t&an two !ays +efore t&e &earin, file in t&e court a written notice of &is inten!e! opposition statin, t&e ,roun!s t&ereof an! ser*e a copy on t&e official recei*er an! t&e +ankrupt. Co6$ses A#ailable to t7e Co6$tG At t&e (earin, t&e court "ay !o any of t&e followin, t&in,s@ *# +# ,# 3# Grant an absolute and immediate discharge/ 5efuse the discharge/ Grant an order of discharge but suspend its operations for a specified time Grant an order of discharge sub$ect to conditions with respect to any earnings or income which may afterwards become due to the bankrupt or with respect to his after-acquired property/

The court will normally only grant an unconditional absolute discharge where the bankrupt is entitled to a certificate of misfortune i.e. a certificate of t&e court to t&e effect t&at t7e ba"=$69t-y was b$o647t abo6t by -a6ses beyo"3 t7e 3ebto$Hs -o"t$ol wit&out any "iscon!uct on &is part. %&is &as t&e effect of releasin, t&e !e+tor fro" t&ose statutory !is9ualifications w&ic& will ot&erwise attac& to &i" after !isc&ar,e. %&ere are no cases in 2?

w&ic& t&e court is +oun! to refuse a !isc&ar,e +ut it cannot grant an immediate and conditional discharge. A&ere t&e +ankrupt &as +een con*icte! of any offence connecte! wit& &is +ankruptcy or w&ere any of t&e followin, facts as containe! in /ection 3? BA &a*e +een pro*e! a,ainst &i"@ CaD %&at &is assets are not of a *alue e9ual to 1? s&illin,s in t&e poun! on t&e a"ount of &is unsecure! lia+ilities unless t&is is !ue to circu"stances for w&ic& &e cannot 1ustly +e &el! responsi+le3 C+D %&at &e &as o"itte! to keep suc& +ooks of accounts as are usual an! proper in t&e +usiness carrie! on +y &i" wit&in 3 years i""e!iately prece!in, &is +ankruptcy3 %&at &e &as continue! to tra!e after knowin, &i"self to +e insol*ent3 %&at &e &as contracte! any !e+t pro*a+le in t&e +ankruptcy wit&out &a*in, at t&e ti"e of contractin, any reasona+le or pro+a+le e.pectation of +ein, a+le to pay it3 %&at &e &as faile! to account satisfactorily for any loss of assets or for any !eficiency of assets to "eet &is lia+ilities3 %&at &e &as +rou,&t on or contri+ute! to &is +ankruptcy +y ras& an! &aLar!ous speculations or +y un1ustifia+le e.tra*a,ance in li*in, or +y ,a"+lin, or +y ne,lect of &is +usiness affairs3 %&at &e &as put any of &is cre!itors to unnecessary e.pense +y fri*olous or *e.atious !efence to any action properly +rou,&t a,ainst &i"3 %&at &e &as +rou,&t on or contri+ute! to &is +ankruptcy +y incurrin, un1ustifia+le e.pense in +rin,in, a fri*olous or *e.atious action3 %&at &e &as wit&in 3 "ont&s prece!in, t&e !ate of t&e recei*in, or!er w&en una+le to pay &is !e+ts as t&ey +eca"e !ue ,i*en un!ue preference to any of &is cre!itors3 %&at &e &as wit&in 3 "ont&s prece!in, t&e !ate of t&e recei*in, or!er incurre! lia+ilities wit& a *iew to "akin, &is assets e9ual to 1? s&illin,s in t&e poun! on t&e a"ount of &is unsecure! lia+ilities3 %&at &e &as on any pre*ious occasion +een a!1u!,e! +ankrupt or "a!e a co"position or arran,e"ent wit& &is cre!itors3 an! %&at &e &as +een ,uilty of any %$a63 or frau!ulent +reac& of trust.

CcD C!D

CeD CfD

C,D C&D CiD

C1D

CkD ClD

A&ere any suc& facts or offences are pro*e! t&e court "ay eit&er CiD 4efuse t&e !isc&ar,e or3

21

CiiD CiiiD Ci*D

/uspen! t&e !isc&ar,e for suc& perio! as it t&inks fit3 or /uspen! t&e !isc&ar,e until a !i*i!en! of not less t&an 1? s&illin,s in t&e poun! &as +een pai! to t&e cre!itors3 or >rant a !isc&ar,e su+1ect to t&e con!ition t&at t&e +ankrupt consents to a 1u!,"ent +ein, entere! a,ainst &i" for any +alance or part of any +alance of t&e !e+ts still re"ainin, unpai! to +e !isc&ar,e! out of &is future earnin,s or after ac9uire! property. /ection 25 BA

En!er /ection 3? BA t&e court &as a si"ilar power w&ere t&e BA;K4E#% &as made a settlement of property before and in consideration of marriage at a time when he was unable to pay his debts without the aid of such settled property or &as contracted in consideration of marriage to settle on his wife or children- property to be subse%uently ac%uired by him and it appears to the court that the settlement or contract was made in order to defeat or delay creditors or was un1ustifia+le &a*in, re,ar! to t&e state of affairs at t&e ti"e it was "a!e. C%&is is calle! a frau!ulent settle"ent wit&in t&e conte.t of /ection 3? of BAD A&ere a +ankrupt is !isc&ar,e! con!itionally8 it is &is !uty until t&e 1u!,"ent or con!ition is satisfie! to ,i*e t&e official recei*er any infor"ation &e "ay re9uire a+out &is earnin,s or after ac9uire! property an! to file in court an annual state"ent *erifie! +y affi!a*it ,i*in, particulars of any property or inco"e ac9uire! since !isc&ar,e. At any ti"e after t&e e.piration of 2 years fro" t&e !ate of t&e or!er8 t&e ter"s an! con!itions of t&at or!er "ay +e *arie! +y t&e court if t&e +ankrupt can satisfy t&e court t&at t&ere is no reasona+le pro+a+ility of &is +ein, in a position to co"ply wit& t&e". A !isc&ar,e! +ankrupt notwit&stan!in, &is !isc&ar,e "ust continue to ,i*e t&e trustee any assistance &e "ay re9uire in t&e realisation an! !istri+ution of t&e estate an! if &e fails to !o so8 &e is ,uilty of conte"pt of court. %&e court "ay also re*oke &is !isc&ar,e if it t&inks fit +ut wit&out pre1u!ice to t&e *ali!ity of any !isposition of t&is property w&ic& occurre! after t&e !isc&ar,e an! +efore its re*ocation. CcD Effect of =r!er of )isc&ar,e@ An or!er of !isc&ar,e un!er /ection 32 BA releases t&e +ankrupt fro" all !e+ts pro*a+le in +ankruptcy e.cept t&e followin,@ 1. Any !e+t on a reco,nisance fro" a !e+t entere! into +y t&e +ankrupt relatin, to t&e 4o#e$"5e"t o$ a4ai"st a"y law $elati"4 to a b$a"-7 o% t7e KRA o$ a"y bo"3 entere! into unless t&e #er"anent /ecretary to t&e %reasury certifies in writin, &is consent to t&e +ankrupt +ein, !isc&ar,e! t&ereof3 An or!er of !isc&ar,e s&all not release a +ankrupt fro" any !e+t or lia+ility incurre! +y "eans of any %$a63 o$ %$a636le"t b$ea-7 o% t$6st to w&ic& &e was a party nor fro" any !e+t or lia+ility w&ereof &e &as o+taine! for+earance +y any frau! to w&ic& &e was a party. /ection 32C1D B An or!er of !isc&ar,e s&all not release a +ankrupt fro" any lia+ility un!er a 1u!,"ent a,ainst &i" in an action for se36-tio" o$ 6"3e$ a" a%%iliatio"

2.

3.

22

o$3e$ o$ 6"3e$ a :6345e"t a4ai"st 7i5 as a -o$$es9o"3e"t i" a 5at$i5o"ial -a6se e.cept an! un!er suc& con!itions as t&e court e.pressly or!ers in respect of t&at lia+ility. /ection 32 C1D C3 /ec 32C2D An or!er of !isc&ar,e s&all release t&e +ankrupt fro" all ot&er !e+ts pro*a+le in +ankruptcy /ec 32C3D An or!er of !isc&ar,e s&all +e conclusi*e e*i!ence of t&e +ankruptcy an! of t&e *ali!ity of t&e procee!in,s t&erein an! in any procee!in,s t&at "ay +e institute! a,ainst a +ankrupt w&o &as o+taine! an or!er of !isc&ar,e in respect of any !e+t fro" w&ic& &e is release! +y t&e or!er8 t&e +ankrupt "ay plea! t&e cause of action occurre! +efore &is !isc&ar,e. /ec 32C$D An or!er of !isc&ar,e !oes not release any person w&o at t&e !ate of t&e recei*in, or!er was a partner or co-trustee wit& t&e +ankrupt or was 1ointly +oun! or &a! "a!e any 1oint contract wit& &i" or any person w&o was surety in t&e nature of a surety for &i". %&e or!er releases t&e +ankrupt fro" all personal !isa+ilities i"pose! upon &i" as a result of t&e a!1u!ication ot&er t&an t&ose w&ic& +y statute continue to apply for a fi.e! perio! after &is !isc&ar,e. (e is only release! fro" t&is if &e o+tains a certificate of "isfortune. %&e =r!er will not &owe*er free &i" fro" any lia+ility to +e prosecute! for any +ankruptcy offences w&ic& &e "ay &a*e co""itte!.

?3@ Re#o-atio" o% 2is-7a$4e %&e or!er of !isc&ar,e "ay +e re*oke! or *arie! at t&e !iscretion of t&e court. %&e ,roun!s for re*ocation inclu!e3 1. ailure +y t&e !e+tor to ,i*e all necessary ai3 to t7e t$6stee in realisin, t&e estate3 or 2. ailure to file a #e$i%yi"4 state5e"t or to atte"3 t7e -o6$t %o$ eAa5i"atio" w&en re9uire! to !o so or to answer any proper 9uestion put to &i" +y t&e court BANKRUPTCY O((ENCESG >enerally w&ile t&e fact t&at a person &as +een a!1u!icate! +ankrupt !oes not in itself ,i*e rise to any cri"inal lia+ility8 t&e +ankrupt "ay +e ,uilty of one or "ore or t&e offences specifie! in t&e BA if &e &as "iscon!ucte! &i"self wit& re,ar! to &is affairs eit&er +efore or !urin, t&e currency of t&e Bankruptcy. %&ere are *arious cate,ories of offences t&e "ost ela+orate ones are in t&e first cate,ory 1. Miscellaneous offences3 %&ey are +asically 2? suc& offences. (ere un!er section */.?*@ it is pro*i!e! t&at any person w&o &as +een a!1u!,e! +ankrupt or in respect of w&ose estate a recei*in, or!er &as +een "a!e s&all +e ,uilty of an offence unless &e pro*es t&at &e &a! no intent to !efrau! CaD ;on !isclosure F;on !isco*ery of propertyG@ - If &e !oes not to t&e +est of &is knowle!,e an! +elief fully an! truly !isclose to t&e trustee all &is property an!

23

C+D CcD C!D CeD CfD C,D C&D

CiD

C1D

CkD

ClD

C"D

&ow an! to w&o" an! for w&at consi!eration an! w&en &e !ispose! of any part t&ereof e.cept suc& part as &as +een !ispose! off in t&e or!inary way of &is tra!e or lai! out in t&e or!inary e.pense of &is fa"ily3 ;on !eli*ery of property@ - If &e !oes not !eli*er up to t&e trustee or as &e !irects all or suc& part of &is property w&ic& is in &is custo!y or un!er &is control an! w&ic& &e is re9uire! +y law to !eli*er up ;on-!eli*ery of +ooks or !ocu"ents@ - If &e !oes not !eli*er up to t&e trustee or as &e !irects all +ooks8 !ocu"ents8 papers an! writin,s relatin, to &is property or affairs Conceal"ent of property@ - If after t&e presentation of a +ankruptcy petition or wit&in two years ne.t +efore presentation &e conceals any part of &is property to t&e *alue of 2??I- or "ore or conceals any !e+ts !ue to or fro" &i" 4e"o*al of property@ - If after presentation of a +ankruptcy petition or wit&in two years ne.t +efore presentation &e frau!ulently re"o*es any part of &is property to t&e *alue of 2??I- or "ore3 ="ission in state"ent of affairs@ - If &e "akes any "aterial o"ission in any state"ent relatin, to &is affairs3 ;ot infor"in, trustees of false clai"s@ - If knowin, or +elie*in, t&at a false !e+t &as +een pro*e! +y any person un!er t&e Bankruptcy &e fails wit&in one "ont& to infor" t&e trustee t&ereof3 #re*entin, pro!uction of +ooks or !ocu"ents@ - If after presentation of a petition &e pre*ents t&e pro!uction of any +ook8 !ocu"ent8 paper or writin, affectin, or relatin, to &is property or affairs unless &e pro*es t&at &e &a! no intent to conceal t&e state of &is affairs or to !efeat t&e law3 )estruction of +ooks or !ocu"ents@ - If after presentation of a petition or wit&in two years ne.t +efore presentation &e conceals8 !estroys8 "utilates or falsifies or is pri*y to t&e conceal"ent8 !estruction8 "utilation or falsification of any +ook or !ocu"ent affectin, or relatin, to &is property or affairs unless &e pro*es t&at &e &a! no intent to conceal t&e state of &is affairs or to !efeat t&e law3 alse entries in +ooks or !ocu"ents@ - If after presentation of a +ankruptcy petition or wit&in two years ne.t +efore presentation &e "akes or is pri*y to t&e "akin, or any false entry in any +ook or !ocu"ent affectin, or relatin, to &is property or affairs unless &e pro*es t&at &e &a! no intent to conceal t&e state of &is affairs or to !efeat t&e law3 #artin, wit& or alterin, of !ocu"ents@ - If after presentation of a +ankruptcy petition or wit&in two years ne.t +efore presentation &e frau!ulently parts wit&8 alters or "akes any o"ission in or is pri*y to frau!ulently partin, wit&8 alterin, or "akin, any o"ission in any !ocu"ent affectin, or relatin, to &is property or affairs3 Accountin, for property +y fictitious losses@ - If after presentation of a +ankruptcy petition or at any "eetin, of &is cre!itors wit&in two years ne.t +efore presentation &e atte"pts to account for any part of &is property +y fictitious losses or e.penses3 =+tainin, property on cre!it +y frau!@ - If wit&in two years ne.t +efore t&e presentation of a petition or after presentation +ut +efore t&e "akin, of a

2$

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CoD

CpD

C9D CrD CsD CtD

rece!in, or!er &e +y any false representation or ot&er frau! &as o+taine! any property on cre!it an! not pai! for it3 =+tainin, property on cre!it on pretence of carryin, on +usiness@ - If wit&in two years ne.t +efore presentation of a petition or after presentation +ut +efore t&e "akin, of a recei*in, or!er &e o+tains un!er t&e false pretence of carryin, on +usiness an! if a tra!er or !ealin, wit& t&e or!inary way of &is tra!e8 o+tains any property on cre!it an! !oes not pay for it3 #awnin, property o+taine! on cre!it@ - If wit&in two years ne.t +efore presentation of a petition or after t&e presentation +ut +efore t&e "akin, of a recei*in, or!er &e pawns8 ple!,es or !isposes of any property w&ic& &e &as o+taine! on cre!it an! not pai! for it unless in t&e case of a tra!er8 t&e pawnin,8 ple!,in, or !isposin, is in t&e or!inary way of &is tra!e3 =+tainin, consent of cre!itors +y frau!@ - If &e is ,uilty of any false representation or ot&er frau! for t&e purpose of o+tainin, t&e consent of &is cre!itors or any of t&e" to an a,ree"ent wit& reference to &is affairs or &is +ankruptcy3 )efault in pay"ent@ - If &e "akes !efault in pay"ent for t&e +enefit of cre!itors of any portion of a salary or ot&er inco"e in respect of t&e pay"ent of w&ic& t&e court is aut&orise! to "ake an or!er3 %ra!in, w&en insol*ent@ - If wit&in one year i""e!iately prece!in, t&e !ate of t&e "akin, of t&e recei*in, or!er &e &as continue! to tra!e or carry on +usiness after knowin, &i"self to +e insol*ent3 /ellin, ,oo!s +elow cost price@ - If wit&in 6 "ont&s +efore t&e "akin, of a recei*in, or!er &e sells ,oo!s at a price lower t&an cost unless &e pro*es t&at &e &a! no intention to !efrau! &is cre!itors3 I"proper contractin, of !e+ts@ - If &e &as contracte! any !e+t pro*a+le in t&e +ankruptcy wit&out &a*in, at t&e ti"e of contractin, it8 any reasona+le or pro+a+le ,roun! or e.pectation of +ein, a+le to pay it.

/ection 13<C2D BA pro*i!es t&at any person ,uilty of an offence un!er su+section 1 s&all +e lia+le to i"prison"ent for a ter" not e.cee!in, 3 years e.cept in t&e cases "entione! respecti*ely in para,rap&s C"D8 CnD an! CoD t&ereof w&en &e s&all +e lia+le to i"prison"ent for a ter" not e.cee!in, fi*e years. 2. rau! +y t&e Bankrupt3 Se-tio" *, ?*@ states t&at any person w&o &as +een a!1u!,e! +ankrupt or in respect of w&ose estate a recei*in, or!er &as +een "a!e is ,uilty of an offence in t&e followin, cases3 CaD If in incurrin, any !e+t or lia+ility &e &as o+taine! cre!it un!er any false pretences or +y "eans of any ot&er frau!3 C+D If wit& intent to !efrau! any of &is cre!itors &e &as "a!e or cause! to +e "a!e any ,ift or transfer of or c&ar,e on &is property3 CcD If wit& intent to !efrau! &is cre!itors &e &as conceale! or re"o*e! any part of &is property since or wit&in two "ont&s +efore t&e !ate of any unsatisfie! 1u!,"ent or or!er for pay"ent of "oney o+taine! a,ainst &i".

25

C!D

If wit& intent to !efrau! any of &is cre!itors8 t&e !e+tor &as cause! or conni*e! at t&e le*yin, of any e.ecution a,ainst &is property &e is !ee"e! to &a*e "a!e a transfer or c&ar,e to &is property.

3. =+tainin, Cre!it@ An un!isc&ar,e! +ankrupt is ,uilty of an offence un!er Se-tio" */0?b@ in t&e followin, two cases@ CaD If eit&er alone or 1ointly wit& any ot&er person o+tains cre!it o*er a 1??I- or "ore fro" any person wit&out !isclosin, t&at &e is an un!isc&ar,e! +ankrupt3 or C+D If &e en,a,es in any tra!e or +usiness un!er a na"e ot&er t&an t&at un!er w&ic& &e was a!1u!icate! wit&out !isclosin, to all persons wit& w&o" &e enters into any +usiness transactions t&e na"e un!er w&ic& &e was a!1u!icate! +ankrupt. $. >a"+lin,@ Se-tio" *,*?*@ pro*i!es t&at any person w&o &as +een a!1u!,e! +ankrupt or in respect of w&ose Estate a recei*in, or!er &as +een "a!e s&all +e ,uilty of an offence if &a*in, +een en,a,e! in any tra!e or +usiness an! &a*in, outstan!in, at t&e !ate of t&e recei*in, or!er any !e+ts contracte! in t&e course an! for t&e purposes of t&at tra!e or +usiness@ CaD (e &as wit&in two years prior to t&e presentation of t&e petition "aterially contri+ute! to or increase t&e e.tent of &is insol*ency +y ,a"+lin, or +y ras& an! &aLar!ous speculation an! t&e ,a"+lin, or speculations are unconnecte! wit& &is tra!e or +usiness or3 C+D (e &as +etween t&e !ate of presentation of t&e petition an! t&e !ate of t&e recei*in, or!er lost any part of &is estate +y ,a"+lin, or ras& an! &aLar!ous speculation or CcD =n +ein, re9uire! +y t&e official recei*er at any ti"e or in t&e cause of &is pu+lic e.a"ination +y t&e court to account for t&e loss of any su+stantial part of &is Estate incurre! wit&in a perio! of a year ne.t prece!in, t&e !ate of t&e presentation of t&e petition or +etween t&at !ate an! t&e !ate of t&e recei*in, or!er &e fails to ,i*e a satisfactory e.planation of t&e "anner in w&ic& t&e loss was incurre!. In !eter"inin, w&et&er any speculations were ras& an! &aLar!ous t&e financial position of t&e +usiness at t&e ti"e t&ey were entere! into "ust +e taken into consi!eration. ;o prosecution "ay +e institute! e.cept +y or!er of t&e court. 5. ailure to keep proper +ooks@ Se-tio" *,2 ?*@ BA pro*i!es t&at any person w&o &as +een a!1u!,e! +ankrupt or in respect of w&ose estate a recei*in, or!er &as +een "a!e s&all +e ,uilty of an offence if &a*in, +een en,a,e! in any tra!e or +usiness !urin, any perio! in t&e 3 years i""e!iately prece!in, t&e !ate of presentation of t&e petition &e &as not kept proper +ooks of account t&rou,&out t&at perio! an! t&rou,&out any furt&er perio! in w&ic& &e was so en,a,e! +etween t&e !ate of t&e presentation of t&e petition an! t&e !ate of t&e recei*in, or!er or &as not preser*e! all +ooks of accounts so kept.

26

6. Bankrupt A+scon!in, wit& #roperty@ Se-tio" *,/ BA pro*i!es t&at if any person w&o is a!1u!,e! +ankrupt or in respect of w&ose estate a recei*in, or!er &as +een "a!e after t&e presentation of a petition or wit&in 6 "ont&s +efore presentation 9uits Kenya or atte"pts or "akes preparation to 9uit Kenya8 &e s&all unless &e pro*es t&at &e &a! no intent to !efrau! +e ,uilty of an offence. ;=%E3 En!er se-tio" *,, BA if any cre!itor or any person clai"in, to +e a cre!itor in any +ankruptcy procee!in,s "akes any false clai" or any proof8 !eclaration or state"ent of account w&ic& is untrue in any "aterial particulars8 &e s&all +e ,uilty of an offence unless &e pro*es t&at &e &a! no intention to !efrau!. T&E O((ICIAL RECEI'ER AN2 TRUSTEE IN BANKRUPTCY 1. =ffice of t&e =fficial 4ecei*er %&e office of t&e official recei*er is set up un!er se-tio" >, BA. %&is pro*i!es t&at t&ere s&all +e an official recei*er of !e+tor2s estate for Kenya an! "any !eputy official recei*ers as "ay +e re9uire! fro" ti"e to ti"e w&o s&all &a*e 1uris!iction in suc& areas as "ay +e specifie!. %&ey are appointe! +y t&e Minister an! are officers of t&e court to w&ic& t&ey are attac&e!. =n t&e "akin, of a recei*in, or!er8 t&e official recei*er +eco"es +y *irtue of &is office8 recei*er of t&e property of t&e !e+tor. Epon t&e "akin, of an a!1u!ication or!er8 t&e official recei*er +eco"es trustee until so"e ot&er trustee is appointe!. (e also acts as trustee in t&e followin, cases@ a. )urin, any vacancy in t&e office of trustee +. Epon release of t&e trustee c. In small bankruptcies !. In t&e a!"inistration in +ankruptcy of t&e estate of a !ecease! person unless and until a trustee is appointed +y t&e cre!itors e. In a co"position or sc&e"e of arran,e"ent until a trustee is appointe! an! !urin, a *acancy in suc& office 2. )uties of t&e =fficial 4ecei*er %&e official recei*er &as !uties as re,ar!s +ot& t&e con!uct of t&e !e+tor an! t&e a!"inistration of &is estate un!er se-tio" >+ BA. C1D )uties as re,ar!s t&e 3ebto$s -o"36-t En!er se-tio" >! BA. It is t&e !uty of t&e official recei*er to@ i. "nvestigate t&e con!uct of t&e !e+tor an! to report to t&e court statin, w&et&er t&ere is reason to +elie*e t&at t&e !e+tor &as co""itte! an act w&ic& constitutes an offence un!er t&e act or w&ic& woul! 1ustify t&e court in refusin,8 suspen!in, or 9ualifyin, an or!er for &is !isc&ar,e. ii. Make suc& ot&er report concernin, t&e con!uct of t&e !e+tor as t&e court "ay !irect iii. %ake suc& part as &e "ay !ee" fit in t&e public e&amination of t&e !e+tor i*. %ake suc& part an! ,i*e suc& assistance in relation to t&e prosecution of any fraudulent debtor as t&e A> "ay !irect C2D )uties as re,ar!s t&e 3ebto$Hs estate

2:

As re,ar!s t&e estate of a !e+tor8 it s&all +e t&e !uty of t&e official recei*er i. #en!in, t&e appoint"ent of a trustee to act as interim receiver of the debtors estate an! w&ere a special "ana,er is not appointe! as "ana,er t&ereof. ii. %o authorise the special manager to raise money or "ake a!*ances for t&e purposes of t&e estate in any case w&ere in t&e interest of t&e cre!itors it appears necessary to !o so. iii. %o summon and preside at the first meeting of cre!itors i*. %o issue forms of pro&y for use at the meetings of cre!itors *. %o report to the creditors as to any proposal which the debtor may have "a!e wit& respect to t&e "o!e of li9ui!atin, &is affairs *i. %o advertise the receiving order8 t&e !ate of t&e cre!itors first "eetin, an! of t&e !e+tors pu+lic e.a"ination an! suc& ot&er "atters as it "ay +e necessary to a!*ertise or t&e purpose of &is !uties as recei*er or "ana,er8 t&e official recei*er &as t&e sa"e power as if &e were a recei*er an! "ana,er appointe! +y t&e court +ut &e s&all as far as practica+le consult t&e cre!itors wit& respect to t&e "ana,e"ent of t&e !e+tor2s property an! "ay for t&at purpose su""on "eetin,s of t&e persons clai"in, to +e cre!itors +ut s&all not unless t&e court ot&erwise or!ers incur any e.pense +eyon! t&at w&ic& is necessary for t&e protection of t&e !e+tor2s property or t&e !isposin, of peris&a+le ,oo!s. 3. Appoint"ent of %rustee Any fit person w&et&er a cre!itor or not "ay +e appointe! trustee eit&er@ a. By cre!itors +y or!inary resolution or +. By a co""ittee of inspection w&en t&e cre!itors resol*e to lea*e t&e appoint"ent to t&e" In t&e case of an appoint"ent +y cre!itors or t&e co""ittee of inspection8 t&e court "ay o+1ect to its appoint"ent on ,roun!s specifie! inter alia in se-tio" 2* BA w&ic& re9uires t&e trustee to ,i*e security En!er se-tio" 22 BA t&e cre!itors "ay at t&eir first or su+se9uent "eetin, appoint a committee of administration of t&e +ankrupt2s property +y t&e trustee.

$.

%&e #owers of t&e %rustee %&ese are t&ose powers w&ic& "ay +e e.ercise! wit& per"ission of t&e -o55ittee o% i"s9e-tio" an! t&ose powers w&ic& "ay +e e.ercise! wit&out suc& per"ission. C1D #owers e.ercise! with permission of t&e inspection co""itte! %&e trustee "ay un!er se-tio" ! @ i. Carry on t&e +usiness of t&e +ankrupt so far as "ay +e necessary for t&e be"e%i-ial wi"3i"4 up t&ereof. ii. Brin,8 institute or !efen! any action or ot&er le4al 9$o-ee3i"4s relatin, to t&e property of t&e +ankrupt iii. E59loy a" a3#o-ate or ot&er a4e"t to take any procee!in,s or !o any +usiness w&ic& "ay +e sanctione! +y t&e co""ittee of inspection

2<

i*.

A--e9t as t7e -o"si3e$atio" %o$ t7e sale of any property of t&e +ankrupt8 a su" of "oney paya+le at a future ti"e8 su+1ect to suc& stipulations as to security an! ot&erwise as t&e co""ittee t&inks fit *. Mo$t4a4e o$ 9le34e any part of t&e property of t&e +ankrupt for t&e purpose of raising money for t&e pay"ent of &is !e+t *i. 4efer any !ispute to a$bit$atio" a"3 -o59$o5ise any clai"s w&et&er +y or a,ainst t&e +ankrupt on suc& ter"s as "ay +e a,ree! on. *ii. Divide in its e&isting form amongst the creditors according to its estimated value- any property w&ic& "ay fro" its peculiar nature or ot&er special circu"stances8 cannot rea!ily or a!*anta,eously +e sol!. *iii. A99oi"t t7e ba"=$69t &i"self to superinten! t&e "ana,e"ent of &is property or carry &is tra!e for t&e cre!itor2s +enefit or &elp in t&e a!"inistration of t&e property in suc& "anner as t&e trustee "ay !irect i.. <i#e t7e ba"=$69t so5e 5ai"te"a"-e allowance for &is ser*ices C2D #owers e.ercise! without permission of t&e Inspection Co""ittee En!er se-tio" +08 t&e trustee "ay !o all or any of t&e followin, t&in,s@ a. Sell all o$ 9a$t o% t7e 9$o9e$ty of t&e +ankrupt +y pu+lic auction or pri*ate contract wit& power to transfer t&e w&ole t&ereof to any person. +. <i#e $e-ei9ts for any "oney recei*e! +y &i"8 w&ic& receipts s&all effectually !isc&ar,e t&e person payin, t&e "oney fro" all responsi+ility in respect of t&e application t&ereof. c. Prove- rank- claim and draw a 3i#i3e"3 i" $es9e-t o% a"y 3ebt 36e to t&e +ankrupt !. E.ercise any powers t&e capacity to e.ercise w&ic& is vested in the trustee un!er t&e Act an! e.ecute any 9owe$s o% atto$"eyD 3ee3s a"3 ot7e$ i"st$65e"ts for t&e purpose of carryin, into effect t&e pro*isions of t&e Act e# Deal with any property to which the bankrupt is beneficially entitled in the same manner as the bankrupt might have dealt with it# 5. Control of t&e %rustee Se-tio" .* BA8 su+1ect to t&e pro*isions of t&e BA8 t&e trustee "ust use &is own !iscretion in t&e "ana,e"ent of t&e estate an! its !istri+ution a"on,st cre!itors. If in !ifficulties8 &e "ay apply to t&e court for suc& !irections as re9uire!. (e "ust &a*e re,ar! &owe*er to t&e !irections ,i*en +y t&e co""ittee of inspection or cre!itors. If t&e !irections conflict8 t&ose of t&e cre!itors pre*ail. (e "ay fro" ti"e to ti"e su""on "eetin,s of t&e cre!itors for t&e purpose of ascertainin, t&eir wis&es an! &e "ust !o so w&en !irecte! +y t&e". /&oul! t&e +ankrupt8 cre!itors or any ot&er person +e a,,rie*e! +y any Act or !ecision of t&e trustee t&ey "ay apply to t&e court w&ic& "ay confir"8 re*erse or "o!ify t&e act or !ecision co"plaine! of an! "ake suc& or!er as it !ee"s 1ust. Se-tio" ./ BA ,i*es t&e official recei*er ,eneral control o*er trustees. 6. Meetin,s of Cre!itors

C1D (ol!in, an! Con!uct of Meetin,s

25

%&e followin, "eetin,s of cre!itors "ay +e &el!@ a. %&e %i$st 5eeti"4 of cre!itors +. A "eetin, "ust +e su""one! +y t&e official recei*er on t&e re9uisition of any cre!itor for t&e purpose of fillin, a #a-a"-y i" t7e t$6stees7i9 c. A "eetin, "ay +e su""one! +y a "e"+er of t&e co""ittee of inspection or +y t&e official recei*er to consi!er t&e $e5o#al o% t7e t$6stee on t&e re9uisition of a si.t& in *alue of t&e cre!itors !. Meetin,s "ay +e su""one! +y t&e trustee at a"y ti5e e. Meetin,s "ay +e su""one! +y t&e trustee at suc& ti"e as t&e cre!itors +y resolution with concurrence of a si&th in value of creditors f. %&e trustee "ust call a "eetin, w7e"e#e$ so 3i$e-te3 by t7e -o6$t C2D #ro.ies A cre!itor "ay not *ote at a "eetin, unless &e &as alrea!y lo!,e! a proof of &is !e+t. A cre!itor w&o &as pro*e! "ay *ote in person or +y pro.y. or"s of pro.y in t&e prescri+e! for" "ust +e sent to t&e cre!itors to,et&er wit& a notice con*enin, t&e "eetin, an! "ust +e !eposite! wit& t&e official recei*er or trustee +efore t&e "eetin, at w&ic& t&ey are to +e use!. C3D 4esolutions %&e followin, resolutions "ay +e passe! at t&e "eetin,s of cre!itors@ A. =r!inary 4esolutions %&ese are !eci!e! +y a 5a8o$ity i" #al6e o% t7e -$e3ito$s 9$ese"t8 *otin, personally or +y pro.y. A&ene*er t&e wor! resolution is use! wit&out 9ualification it "eans an or!inary resolution. B. /pecial 4esolutions %&ese are !eci!e! +y a "a1ority in nu"+erD t7$eeC;6a$te$ i" #al6e o% t7e -$e3ito$s 9$ese"t *otin, personally or +y pro.y. A special resolution is re9uire! in t&ree cases@ i. %o appoint a trustee ot&er t&an an official recei*er in a s"all +ankruptcy. ii. %o make an allowance to the debtor in so"e for" ot&er t&an "oney iii. %o re9uire t&e official receiver to remove a special manager C. 4esolution for Co"position or /c&e"e %&ese are !eci!e! +y a "a1ority in nu"+er an! t&ree-9uarter in *alue of all t&e cre!itors w&o &a*e pro*e! t&eir !e+t :. 4e"uneration of %rustees %&e re"uneration of t&e trustee is fi.e! +y an o$3i"a$y $esol6tio" of t&e cre!itors or if t&e cre!itors so resol*e8 +y a co""ittee of inspection. It "ust +e in t&e nature of a co""ission or a percenta,e8 one part to +e paya+le on t&e a"ount realise! +y t&e trustee after !e!uctin, any su" pai! to secure! cre!itors out of t&e procee!s of t&eir securities an! t&e ot&er part on t&e a"ount !istri+ute! as !i*i!en!s.

3?

<. Accounts of t&e %rustee C1D In relation to Books %&e trustee is re9uire! to keep t&e followin, +ooks@ a. A $e-o$3 boo= in w&ic& &e "ust recor! t&e "inutes8 procee!in,s an! resolutions of any "eetin,s of cre!itors an! of t&e co""ittee of inspection an! any ot&er "atters t&at "ay +e necessary to ,i*e an accurate recor! of &is a!"inistration of t&e estate. +. A -as7boo= in t&e prescri+e! for" in w&ic& &e "ust enter &is receipts an! pay"ents fro" !ay to !ay c. A t$a3i"4 a--o6"t w&ere &e is carryin, on t&e +usiness of t&e !e+tor in w&ic& &e "ust keep a !istinct account of t&e tra!in, an! &e "ust incorporate t&e total weekly a"ounts of receipts an! pay"ents on t&e tra!in, account in t&e cas&+ook. C2D Inspection Any cre!itor "ay su+1ect to t&e courts control8 personally or +y &is a,ent inspect t&ese +ooks. (e "ay also re9uire t&e trustee to supply &i" wit& a list of cre!itors s&owin, t&e a"ount of t&e !e+t !ue to eac& cre!itor on pay"ent of a s"all fee. Ait& t&e concurrence of a si.t& of t&e cre!itors8 &e "ay re9uire t&e trustee to pro*i!e &i" wit& a state"ent of accounts to !ate. %&e trustee "ust supply t&e official recei*er wit& suc& infor"ation an! ,i*e &i" suc& access to t&e +ankruptcy +ooks an! !ocu"ents as "ay +e re9uisite for ena+lin, &i" to perfor" &is !uties. C3D Au!it of Accounts %&e trustee "ust su+"it t&e recor! +ook an! cas& +ook to,et&er wit& any ot&er +ooks an! *ouc&ers to a co""ittee of inspection if any8 w&en re9uire! an! in any case "ot less t7a" o"-e e#e$y t7$ee 5o"t7s. Epon resi,nation or release8 t&e trustee "ust surren!er to t&e official recei*er or new trustee all +ooks an! !ocu"ents. %&e "oneys recei*e! +y t&e trustee are not to +e kept or pai! in &is pri*ate account +ut "ust +e pai! into t&e +ankruptcy estate account w&ic& is to +e kept +y t&e official recei*er wit& t&e prescri+e! +ank. 5. %er"ination of =ffice of %rustee %&e office of t&e trustee "ay +e *acate! in any of t&e followin, ways@ a. By $esi4"atio" If t&e trustee wis&es to resi,n &e "ust call a "eetin, of cre!itors to consi!er w&et&er &is resi,nation s&all +e accepte! or not an! ,i*e se*en !ays notice of t&e "eetin, to t&e official recei*er. +. By $e5o#al %o$ 4oo3 -a6se %&e trustee "ay +e re"o*e! +y ordinary resolution of t&e cre!itors at a "eetin, specially calle! for t&at purpose of w&ic& seven days notice &as +een ,i*en. /uc& a "eetin, "ay +e su""one! +y a "e"+er of t&e co""ittee of inspection or +y an official recei*er on t&e re9uisition of a si.t& in *alue of t&e cre!itors w&o "ust !eposit a su" sufficient to pay t&e e.penses of t&e "eetin,. c. By i"sol#e"-y o% t7e t$6stee If a recei*in, or!er is "a!e a,ainst a trustee8 &e t&ere+y *acates &is office.

31

!. By $elease En!er se-tio" 0, BA a trustee is release! once &e &as realise! all property of t&e +ankrupt an! pai! out to t&e cre!itors. T&E PROPERTY O( T&E BANKRUPT *. 'esti"4 o% P$o9e$ty i" t7e t$6stee Se-tio"s +/ to +> BA8 state t&e property of t&e +ankrupt rests in t&e trustee or in t&e official recei*er i""e!iately after "akin, of t&e a!1u!ication or!er. 2. 2is-o#e$y a"3 eAa5i"atio" a@ 2is-o#e$y o% 9$o9e$ty %&e !e+tor is re9uire! to "ake full !isclosure of t&e w&ole of &is property to !eli*er up possession of all property8 !i*isi+le a"on, &is cre!itors w&ic& is in &is possession or control an! assists t&e trustee to t&e ut"ost of &is power in t&e realisation of &is property an! !istri+ution of procee!s a"on,st &is cre!itors. If &e fails to perfor" t&ese !uties &e will +e punis&e! for conte"pt of court in a!!ition to any ot&er punis&"ent of w&ic& &e "ay +e su+1ect. b@ P$i#ate eAa5i"atio" At any ti"e after t&e !ate of recei*in, or!er t&e official recei*er or trustee "ay apply to t&e court for e.a"ination on oat& of t&e !e+tor or &is wife or any person known or suspecte! to &a*e possession of any property of t&e !e+tor or of +ein, capa+le of ,i*in, any infor"ation relatin, to t&e !e+tor8 &is !ealin,s or property an! t&e court "ay re9uire any suc& person to pro!uce any rele*ant !ocu"ents in &is custo!y. If &e fails to atten!8 t&e court "ay issue a warrant for &is arrest. If any person upon e.a"ination a!"its &e is in!e+te! to t&e !e+tor or is in possession of t&e !e+tor2s property8 t&e court "ay or!er pay"ent or !eli*ery of property to t&e official recei*er or trustee. Se- 2. BA -@ SeiB6$e o% 9$o9e$ty Se- 2, BA 1 %&e court "ay issue warrants aut&orisin, t&e +reakin, open or searc&in, an! t&e seiLure of any property of t&e !e+tor w&et&er in t&e custo!y or possession of t&e !e+tor or of so"e ot&er person. 3@ Re3i$e-tio" o% lette$s Se- 2> BA C =n t&e application of t&e official recei*er or trustee8 t&e court "ay fro" ti"e to ti"e an! not e.cee!in, t&ree "ont&s as &e !ee"s fit8 or!er t&at all letters8 tele,ra"s an! ot&er postal parcels to +e re!irecte! to t&e official recei*er or trustee. /. P$o9e$ty 3i#isible a5o"4 -$e3ito$s All property of t&e !e+tor passes to t&e trustee e.cept t&e followin,@ aD %rust property e.,. property &e &ol!s in trust for all persons +D %&e tools of t&e +ankrupts tra!e - (is necessary wearin, apparel

32

Be!!in, for &is wife an! c&il!ren not e.cee!in, K/&s 5?? alt&ou,& t&e court "ay or!er an incre"ent on t&is allowance cD Certain interests !eter"ina+le upon +ankruptcy. A&ere property is transferre! su+1ect to a con!ition t&at t&e transferees interest s&all cease upon &is +ankruptcy3 t&en t&e transferee can "ake no clai" to t&e property. ,. 2o-t$i"e o% $elatio" Se- ,2 BA Alt&ou,& t&e !e+tors property "ay not in fact *est in t&e trustee until &e is a!1u!,e! +ankrupt8 t&e trustees title operates retrospecti*ely an! un!er t&e !octrine of relation-+ack8 takes effect fro" co""ence"ent of t&e +ankruptcy su+1ect to certain e.ceptions. a@ P$ote-te3 T$a"sa-tio"s wit7i" t7e 5ea"i"4 o% se-tio" + BA If t&e !octrine of relation-+ack were too ri,i!ly +e applie!8 no pru!ent person woul! "ake any pay"ents to or &a*e any ot&er !ealin,s wit& a person w&ose financial position was at all !ou+tful8 an! t&is "i,&t well precipitate a +ankruptcy w&ic& woul! ot&erwise &a*e +een a*oi!e!. Accor!in,ly8 certain transactions entere! into +y t&e !e+tor in t&e or!inary course of &is +usiness or pri*ate affairs are protecte! fro" operation of t&e !octrine. %&ese are@ i# Transactions without notice of the act of bankruptcy %&e followin, transactions entere! into +y t&e !e+tor +etween t&e co""ence"ent of t&e +ankruptcy an! t&e !ate of t&e recei*in, or!er are not in*ali!ate! +y &is +ein, a!1u!,e! +ankrupt an! cant +e set asi!e +y t&e trustee in +ankruptcy. %&ese are@ - Any pay"ent +y t&e +ankrupt to any of &is cre!itors - Any pay"ent or !eli*ery to t&e +ankrupt - Any con*eyance or assi,n"ent +y t&e +ankrupt for *alua+le consi!eration - Any contract8 !ealin, or transaction +y or w&ic& t&e +ankrupt for a *alua+le consi!eration8 pro*i!e! t&at t&e transaction took place +efore t&e !ate of t&e recei*in, or!er an! t&e person wit& w&o" t&e !e+tor was !ealin, &a! not at t&e ti"e of t&e transaction notice of any a*aila+le act of +ankruptcy co""itte! +y t&e +ankrupt +efore t&at ti"e. ii# Payments to bankrupt A!!itional protection is ,i*en to a person w&o pays "ore or !eli*ers property to t&e +ankrupt or to a person clai"in, +y assi,n"ent +y &i". /uc& person is !isc&ar,e! fro" &is lia+ility to t&e !e+tor alt&ou,& &e &a! notice of t&e act of +ankruptcy if@ - (e "a!e pay"ent or !eli*ery +efore t&e !ate on w&ic& t&e recei*in, or!er was "a!e - Ait&out notice of t&e presentation of a +ankruptcy petition a,ainst t&e !e+tor

33

Eit&er pursuant to t&e or!inary course of +usiness or ot&erwise +onafi!e. Se- +* BA

b@ Co59lete3 EAe-6tio"s %&is is wit&in t&e "eanin, of Se-tio" ,+ a"3 ,!. En!er section $58 w&ere a cre!itor &as issue! e.ecution a,ainst t&e ,oo!s or lan!s of a !e+tor or &as attac&e! any !e+t !ue to &i"8 &e s&all not +e entitle! to retain t&e +enefit of t&e e.ecutions or attac&"ent a,ainst t&e trustee of t&e !e+tor unless &e &as co"plete! t&e e.ecution or attac&"ent +efore t&e !ate of t&e recei*in, or!er an! +efore notice of t&e presentation of any +ankruptcy petition +y or a,ainst t&e !e+tor or of t&e co""ission of any a*aila+le act of +ankruptcy +y t&e !e+tor. En!er section $68 it is pro*i!e! t&at w&ere any ,oo!s of a !e+tor are taken in e.ecution an! +efore t&e sale t&ereof or co"pletion of e.ecution +y receipt or reco*ery of t&e full a"ount of t&e le*y8 notice is ser*e! on t&e +ailiff t&at a recei*in, or!er &as +een "a!e a,ainst t&e !e+tor. %&e +ailiff s&all on re9uest !eli*er t&e ,oo!s an! any "oney seiLe! or recei*e! in part satisfaction of t&e e.ecution to t&e official recei*er +ut t&e cost of e.ecution s&all +e a first c&ar,e on t&e ,oo!s or "oney so !eli*ere! an! t&e official recei*er or trustee "ay sell t&e ,oo!s or an a!e9uate part t&ereof for t&e purpose of satisfyin, t&e c&ar,e. -@ Rest$ai"t by La"3lo$3 /u+1ect to certain li"itations8 t&e ri,&ts of a lan!lor! to restrain upon t&e ,oo!s of &is tenant for arrears of rent is not affecte! +y t&e tenants +ankruptcy un!er se- , BA. +. <oo3s i" Ba"=$69tHs $e96te3 ow"e$s7i9 En!er se-tio" ,/ BA8 t&e trustee "ay clai" property +elon,in, to t&ir! parties w&ic& is in t&e &an!s of t&e +ankrupt at t&e co""ence"ent of t&e +ankruptcy if t&e property@ iD consists of ,oo!s iiD In possession8 or!er8 or !isposition of t&e +ankrupt at co""ence"ent of +ankruptcy iiiD or use in t&e +ankrupts tra!e or +usiness i*D Ait& t&e consent of t&e owner *D %&e +ankrupt "ust +e t&e repute! owner t&ereof !. 'oi3able 3is9ositio"s e%%e-te3 be%o$e -o55e"-e5e"t o% ba"=$69t-y Alt&ou,& t&e !octrine of relation-+ack !oes not affect t&e *ali!ity of transactions entere! into +y t&e +ankrupt +efore t&e co""ence"ent of +ankruptcy8 t&e trustee is e.pressly e"powere! to set asi!e !ispositions of property effecte! +efore t&at ti"e w&ic& falls wit&in t&e followin,@ aD 7oi!a+le settle"ents %&ese are +asically two@ i# 6oluntary settlements within the meaning of section 347*8 BA

3$

BAny settle"ent of property not +ein, a settle"ent "a!e +efore or in consi!eration of a "arria,e or in fa*our of t&e purc&aser in ,oo! fait& or "a!e for wife an! c&il!ren of settlor w&ic& &as accrue! to settlor8 s&all if settlor +eco"es +ankrupt wit&in two years +e *oi! a,ainst t&e trustee8 +ankrupt wit&in 1? years8 unless t&e parties can rule t&at t&e settlor at "akin, settle"ent was a+le to pay &is !e+ts wit&out recourse to t&at property. ii# Agreements to settle after9ac%uired property 'sec 347+8 BA( BAny pro*en act or contract "a!e +y settlor in consi!eration of &is or &er "arria,e eit&er for t&e future pay"ent of "oney for wifeI&u++yIki!s3 w&erein t&e settlor &a! no property at t&e !ate of "arria,e8 s&all if settlor is a!1u!,e! +ankrupt an! contract &asn2t +een e.ecute! +e *oi! a,ainst trustee in +ankruptcyN. :ou enter contract- you settle to your wife property to ac%uire in the future/ that is ;void against the trustee and is put as part of estate to be distributed#< +D rau!ulent preference Ait&in t&e "eanin, of se-tio" ,0I*J BA. Any transfer = months prior to the bankruptcy- the transaction is declared void against trustee and that property is sub$ect to distribution to creditors# rau!ulent con*eyance A&ic& constitute an act of +ankruptcy "ay +e set asi!e +y t&e trustee un!er t&e !octrine of relation-+ack unless it can +e re,ar!e! as protecte! transaction.

cD

!D Enre,istere! assi,n"ent of +ook !e+ts Ose- ,. BAP A&ere a person en,a,e! in any tra!e or +usiness8 assi,ns to anot&er person &is e.istin, or future +ook !e+ts or any class t&ereof an! su+se9uently +eco"es +ankrupt8 t&e assi,n"ent is *oi! a,ainst t&e trustee as re,ar!s any +ook !e+ts not yet pai! at co""ence"ent of +ankruptcy unless t&e assi,n"ent &as +een re,istere! un!er section 13 CCap 2<D of C7attels T$a"s%e$ A-t.

>. T7e t$6stees $i47t o% 3is-lai5e$ %&e trustee takes t&e +ankrupts property su+1ect to any lia+ilities or o+li,ations attac&in, t&ereto. If t&e lia+ilities e.cee! t&e +enefit to t&e estate8 t&e trustee can !isclai" t&e property un!er se-tio" +. BA. .. S6bse;6e"t ba"=$69t-ies Se-tio" ,, BA.

35

A&ere t&ere is a su+se9uent +ankrupt t&e first trustee +eco"es a secure! cre!itor un!er t&e secon! +ankruptcy. %rustee in last +ankruptcy s&all +e !ee"e! a cre!itor. A +ankrupt can still enter into transactions8 e*en after +ein, !eclare! +ankrupt. If now !eclare! +ankrupt8 t&e trustee in pre*ious +ankruptcy can +e !eclare! a cre!itor in t&e secon! +ankruptcy. 2ISTRIBUTION O( T&E ESTATEG #ro*isions relatin, to t&is are to +e foun! in t&e secon! sc&e!ule to t&e BA. Any cre!itor w&o wis&es to "ake a clai" a,ainst t&e estate of t&e Bankrupt "ust pro*e &is !e+t to t&e satisfaction of t&e %rustee. %&e %rustee is un!er a !uty to con*ert all t&e Bankrupt2s property w&ic& is !i*isi+le a"on, cre!itors into "oney an! to !istri+ute t&e procee!s +y way of !i*i!en!s a"on, cre!itors w&o &a*e pro*e! in accor!ance wit& a !ue or!er of priorities an! in proportion to t&e a"ounts !ue to t&e". Ep until &e &as pro*e! &is !e+t a cre!itor is not entitle! to *ote at any "eetin, of cre!itors or to recei*e any !i*i!en!. *. 2EBTS PRO'ABLE IN BANKRUPTCY CaD #ro*a+le )e+ts

Se-tio" /+ ?/@ B.A. states t&at all !e+ts an! lia+ilities present or future certain or contin,ent to w&ic& t&e !e+tor is su+1ect at t&e !ate of t&e recei*in, or!er or to w&ic& &e "ay +eco"e su+1ect +efore &is !isc&ar,e +y reason of any o+li,ation incurre! +efore t&e !ate of t&e recei*in, or!er are !ee"e! to +e !e+ts pro*a+le in +ankruptcy. C+D ;on #ro*a+le )e+ts %&e followin, !e+ts are not pro*a+le in +ankruptcy CiD Clai"s for unli9ui!ate! !a"a,es in tort3 t&is is un!er Se-tio" /+?*@ B.A. &erein !e"an!s in t&e nature of unli9ui!ate! !a"a,es arisin, ot&erwise t&an +y reason of a contract8 pro"ise or +reac& of trust are not pro*a+le in +ankruptcy. %&erefore clai"s arisin, out of a tort co""itte! +y t&e +ankrupt cannot +e pro*e! unless t&e !a"a,es +eco"e li9ui!ate! +y a,ree"ent or 1u!,"ent +efore t&e !ates of t&e recei*in, or!er. A clai" arisin, out of a +reac& of contract frau! or +reac& of trust cannot +e e.clu!e! "erely +ecause t&e clai" "i,&t alternati*ely +e foun!e! in tort. CiiD CiiiD Ci*D C*D )e+ts incurre! after notice of una*oi!a+le act of +ankruptcy un!er /ection 35C2D B.A. )e+ts incurre! after t&e !ate of t&e recei*in, or!er /ection 35C3D BA Enenforcea+le )e+ts@ t&ese are !e+ts foun!e! on an ille,al or i""oral consi!eration or statutes-+arre! !e+ts3 )e+ts incapa+le of +ein, fairly esti"ate! un!er /ection 35C6D of B.A

36

C*iD

Ali"ony an! "aintenance t&e co""on law lia+ility of a &us+an! to "aintain &is wife is not a contractual lia+ility an! t&erefore !oes not constitute a pro*a+le !e+t.

CcD Contin,ent Lia+ilities A contin,ent lia+ility is one8 w&ic& at t&e !ate of proof is not certain to arise. It is !epen!ent upon t&e &appenin, of so"e e*ents8 w&ic& "ay or "ay not take place. /u+1ect to certain rules a cre!itor "ay pro*e for t&e full *alue of a contin,ent lia+ility C!D #erio!ical #ay"ents@ En!er Se-tio" *0 of t&e BA &ere w&ere any rates or ot&er pay"ent falls !ue at state! perio!s an! t&e recei*in, or!er is "a!e at any ti"e ot&er t&an any one of t&ose perio!s8 t&e person entitle! to t&e pay"ent "ay pro*e for a proportionate part t&ereof upto t&e !ate of t&e or!er as if pay"ent accrue! !ue fro" !ay to !ay. CeD Interest on )e+ts@ En!er t&e secon! sc&e!ule of t&e BA8 interest on !e+ts is pro*a+le an! paya+le. 2. MUTUAL 2EALIN<S It woul! +e unfair if a cre!itor w&o was &i"self in!e+te! to a +ankrupt to +e re9uire! to pay &is !e+t in full8 w&ile recei*in, &i"self only a s"all portion of t&e !e+t !ue to &i" fro" t&e +ankrupt. Accor!in,ly se-tio" /! pro*i!es w&ere t&ere &a*e +een "utual cre!its8 !e+ts or ot&er "utual !ealin,s +etween a !e+tor8 a,ainst w&o" a recei*in, or!er &as +een "a!e8 an! any ot&er person pro*in, or clai"in, to pro*e a !e+t un!er t&e recei*in, or!er an account "ust +e taken of partiesI su"s !ue fro" t&e one party to t&e ot&er in respect of suc& "utual !ealin,s an! t&e su" !ue fro" t&e ot&er party an! t&e +alance of t&e account an! no "ore clai"e! or pai! fro" eit&er si!e respecti*ely8 t&at is8 t&e cre!itor "ust su+tract fro" w&at &e is owe!8 w&at &e &i"self owes to t&e !e+tor. /. SECURE2 CRE2ITORS %&ese are t&ose w&o &ol! "ort,a,es8 c&ar,es or a lien on t&e !e+tor2s property. =n t&e !e+tor2s +ankruptcy &e "ay @ 1. 2. 3. $. 4ely on t&e security an! not pro*e at all3 or /urren!er t&e security an! pro*e t&e full a"ount of t&e !e+t3 or 4ealise &is security an! pro*e for t&e +alance if any3 or Esti"ate t&e *alue of t&e security an! pro*e for t&e +alance.

,. LAN2LOR2HS PO)ER O( 2ISTRESS En!er Se-tio" , B.A. It &as a pro*ision relatin, to t&e lan!lor!2s power of !istress8 t&e position is so"ew&at si"ilar to t&at of a secure! cre!itor. (e is entitle! to seiLe t&e ,oo!s of a tenant in satisfaction of t&e rent !ue to &i". +. RULES AS TO PROO( O( 2EBTS

3:

In pro*in, of !e+ts t&e rules lai! !own in t&e 2 n! sc&e!ule to t&e Bankruptcy Act "ust +e o+ser*e! as rea! wit& se-tio" /> BA. !. OR2ER O( PAYMENTS@ Se- /. a"3 /0 BA %&e Assets re"ainin, after pay"ent of t&e e.penses properly incurre! in preser*in,8 ,ettin, in an! realisin, t&e assets of t&e +ankrupt "ust +e pai! out in t&e followin, or!er of priority@ 1. 2. 3. $. 5. 6. Costs a"3 C7a$4es incurre! in t&e a!"inistration of t&e Estate3 #re-preferential !e+ts e.,. w&ere a +usiness !ies t&en you &a*e suc& !e+ts P$e%e$e"tial 2ebts3 U"se-6$e3 3ebts3 2e%e$$e3 2ebts3 If t&ere is any s6$9l6s t&is is to +e returne! to t&e Bankrupt. /ection 3<-35 B.A.

As to !istri+ution of property t&rou,& !i*i!en!s t&ere are pro*isions in sections 66-:3 BA SMALL ESTATES@ En!er Se-tio" *2 if a petition is presente! an! t&e *alue of t&e !e+t is not "ore t&an K/&s. 128??? t&e court "ay or!er t&at t&e !e+tor2s Estate +e a!"inistere! su""arily w&ereupon t&e pro*isions of t&e BA will apply su+1ect to t&e followin, 9ualifications. *# +# ,# Should the debtor be ad$udged bankrupt- the official receiver shall be the Trustee in Bankruptcy/ There is no committee of inspection- everything is done by the official receiver/ >verything else may be modified to simplify the procedure e&cept for the provisions relating to e&amination and discharge of the debtor#

&IRE PURC&ASE %&e Kenyan (ire #urc&ase Law is ,o*erne! +y t&e principles of t&e En,lis& co""on law as "o!ifie! +y t&e (ire #urc&ase Act Cap 5?: of t&e Laws of Kenya. At co""on law a &ire purc&ase a,ree"ent is !efine! as a -o"t$a-t %o$ t7e 3eli#e$y o% 4oo3s 6"3e$ w7i-7 t7e &i$e$ is 4$a"te3 a" o9tio" to 96$-7ase t7e 4oo3s . %&e a,ree"ent is a &y+ri! for" of contract in t&at it is neit&er a si"ple +ail"ent nor a contract of sale +ut co"+ines ele"ents of +ot&. %&e ori,inal position at co""on law is t&at t&ere are no for"al re9uire"ents for a &ire purc&ase a,ree"ent. An oral a,ree"ent is *ali! an! +in!in, as a written a,ree"ent. %&e 9uestion of capacity to enter into a (ire #urc&ase A,ree"ent is ,o*erne! +y t&e nor"al rules of contract law. Because t&e (ire #urc&ase A,ree"ent is a for" of +ail"ent8 it only applies to ,oo!s as !efine! in t&e Sale o% <oo3s A-t Ca9 /*. %&e ter"s of a (ire #urc&ase A,ree"ent "ust +e state! wit& certainty an! precision so as to ena+le t&e court to ascertain t&e intention of t&e parties. %&e parties to t&e a,ree"ent "ust reac& a consensus ad idem i.e. to say a "eetin, of t&e "in!s.

3<

If t&e !ealer of ,oo!s frau!ulently co"pletes a !ocu"ent si,ne! in +lank +y t&e &irer8 t&en no *ali! &ire purc&ase contract results. /&oul! t&e nature of t&e !ocu"ent w&ic& t&e &irer si,ns +e "isrepresente! to &i" so t&at &e si,ns in t&e +elief t&at it is so"et&in, essentially !ifferent fro" w&at it is t&e &irer can plea! "o" est %a-t65 Cit is not my deed or it is not my actD an! t&erefore escape lia+ility. If t&ere is a c&an,e in t&e con!ition of t&e ,oo!s +etween t&e ti"e of t&e offer an! acceptance8 a,ain no *ali! a,ree"ent co"es into force. In t&e case of an a,ree"ent +etween t&e !ealer an! t&e &irer wit&out t&e inter*ention of a finance co"pany8 a le,ally +in!in, &ire purc&ase a,ree"ent co"es into e.istence w&en t&e !ealer posts a letter of acceptance to t&e &irer or !eli*ers t&e ,oo!s. A&ere t&e finance co"pany finances t&e transaction8 alt&ou,& t&e !ealer is supplyin, t&e ,oo!s8 t&e owner of t&e ,oo!s at t&e rele*ant ti"e is a finance co"pany. %&e &irer t&erefore contracts wit& a finance co"pany w&en &e enters into a &ire purc&ase a,ree"ent. %&us t&ere "ust +e acceptance +y t&e finance co"pany an! co""unication of t&at acceptance to t&e &irer8 w&ic& is nor"ally !one +y postin, &i" a copy of t&e a,ree"ent s&owin, e.ecution +y t&e co"pany. A &ire purc&ase transaction &as +een !escri+e! as a trian,ular transaction wit& t&e )ealer an! t&e (irer at t&e +otto" an! t&e inance co"pany at t&e top. %&e 9uestion arises as to t&e effect of t&e !eli*ery of ,oo!s +y t&e !ealer to t&e &irer +efore acceptance +y t&e finance co"pany. As far as t&e o+li,ations of t&e &irer are concerne!8 until acceptance of &is proposal +y t&e finance co"pany t&e &irer &ol!s t&e ,oo!s as a +ailee of t&e !ealer. /uc& +ail"ent can +e ter"inate! at t&e will of t&e !ealer or t&e &irer. It &owe*er continues until t&e finance co"pany purc&ases t&e ,oo!s fro" t&e !ealer an! e.ecutes t&e &ire purc&ase a,ree"ent. A&en t&is is !one8 t&e +ail"ent as +etween t&e !ealer an! t&e &irer ter"inates an! is replace! +y t&e &ire purc&ase a,ree"ent +etween t&e finance co"pany an! t&e &irer. %&e &irer t&ereafter &ol!s t&e ,oo!s as a +ailee of t&e finance co"pany un!er t&e ter"s of t&e (ire #urc&ase A,ree"ent. /&oul! t&e finance co"pany refuse to accept t&e transaction8 t&e +ail"ent +etween t&e !ealer an! t&e &irer ends or is terminable by the dealer. Before t&e finance co"pany e.ecutes t&e &ire purc&ase proposal t&e &irer in possession of t&e ,oo!s owes t&e !ealer a !uty to take reasona+le care of t&e ,oo!s8 t&e +reac& of w&ic& ,i*es t&e !ealer a ri,&t of action un!er t&e tort of negligence or if wilful !a"a,e is cause! to t&e ,oo!s t&en trespass to goods. If t&e finance co"pany refuses to accept t&e transaction t&e &irer coul! +e &el! lia+le in %uasi contract to pay t&e !ealer a reasona+le c&ar,e for t&e use of t&e ,oo!s. #en!in, acceptance of t&e transaction +y t&e finance co"pany t&e &irer can use t&e ,oo!s at will as +ailee if t&ere are no restrictions a,ree! +etween &i" an! t&e !ealer. %&e !ealer at t&at sta,e !oes not owe t&e &irer any contractual !uty as to fitness of t&e ,oo!s or t&eir suita+ility +ecause t&ere is no contract +etween t&e" +ut si"ply a loan of t&e ,oo!s.

35

/&oul! &owe*er t&e &irer +e in1ure!8 !ue to !efects in t&e ,oo!s8 w&ic& t&e !ealer knows or ou,&t to know8 t&e &irer can "aintain an action in tort for negligence. If t&e proposal is not accepta+le +y t&e inance Co"pany8 no contract co"es into e.istence in relation to t&e ,oo!s &ence t&e +ail"ent +etween t&e !ealer an! t&e &irer ter"inates. %&e lia+ility of t&e finance co"pany for t&e con!ition of t&e ,oo!s !oes not start until it &as entere! into a &ire purc&ase a,ree"ent. ;ote t&at &ire purc&ase a,ree"ents "ust not be impossible to perform8 contain a mistake on t&e part of eit&er party or +e illegal. T&E PASSIN< O( PROPERTY %&ere is no !istinction +etween property an! title un!er (ire #urc&ase. %&is is +ecause property w&ic& essentially "eans owners&ip of t&e ,oo!s !oes not pass to t&e &irer till t&e option to purc&ase &as +een e.ercise!. %&us t&e &irer &as t&e ri,&t to return t&e ,oo!s an! ter"inate &is lia+ility at any ti"e. En!er /ection 2 of t&e actories Act of En,lan! 1<<5 w&ic& is a statute of ,eneral application to Kenya if a Mercantile A,ent !isposes of t&e ,oo!s in &is possession wit& t&e consent of t&e owner &e passes a ,oo! title to a +ona fi!e purc&aser for *alue wit&out notice. If t&en ,oo!s are lent to a &irer w&o is a "ercantile a,ent he cannot pass a good title to a ,rd party since t&e ,oo!s are lent to &i" in &is personal capacity an! not in t&e capacity of a "ercantile a,ent. /ection 22 of t&e En,lis& /ale of >oo!s Act of 1<53 pro*i!es t&at a sale to a +ona fi!e purc&aser in "arket o*ert accor!in, to t&e usa,e of t&e "arket passes a ,oo! title e*en if t&e seller &a! no title. %&is t&erefore operates as an e.ception to t&e "e5o 3at principle un!er (ire #urc&ase. %&is e.ception &owe*er !oes not operate un!er Kenyan law. /o"eti"es t&e owner of t&e ,oo!s &ire! to t&e &irer w&o &as resol! t&e" "ay *oluntarily relin9uis& &is title to t&e" after +ein, pai! an! &ence ,oo! title passes to su+se9uent purc&asers. %&is is not 9uite an e.ception to ne"o !at +ut a "o!ification of it. %&e &irer un!er a &ire purc&ase a,ree"ent possesses a contractual ri,&t to ac9uire owners&ip of t&e ,oo!s upon pay"ent of all instal"ents !ue an! t&e e.ercise of t&e option to purc&ase. %&e 9uestion arises can the hirer therefore assign the benefit of the AgreementQ At co""on law if a contract is silent on assi,n"ent t&en t&e &irer can assi,n +ut if it specifically pro&i+its assi,n"ent t&en &e s&oul! not assi,n. In Kenya8 t&ere is no !ifference +etween t&e two +ecause t&e !efinition of a &irer inclu!es an assi,nee of t&e &irer. REPOSSESSION BY T&E O)NER At co""on law an owner of ,oo!s is entitle! to repossess t&e" once t&e +ail"ent ceases or ter"inates. A &ire purc&ase contract "ay pro*i!e t&at if t&e &irer co""its a specifie!

$?

+reac& t&en t&e a,ree"ent ter"inates w&ereupon t&e owner is entitle! to possession of t&e ,oo!s. In cases of resale of t&e ,oo!s +y t&e &irer t&e &irer cannot pass a ,oo! title &ence t&e owner can repossess t&e ,oo!s fro" t&e innocent purc&aser. %&e owner2s clai" to !a"a,es will +e li"ite! to t&e unpai! +alance of t&e &ire purc&ase price. /&oul! 1u!,"ent +e entere! a,ainst t&e &irer8 t&e 1u!,"ent cre!itor is not permitted to sei2e goods the sub$ect matter of a hire purchase agreement. If t&e &irer !oes not !isclose t&is fact to t&e 1u!,"ent cre!itor an! t&e &ire purc&ase ,oo!s are seiLe! an! sol! t&e owner cannot "aintain an action for con*ersion a,ainst an i""o-e"t 96$-7ase$ +ut &e can reco*er t&e price for w&ic& t&e ,oo!s were sol! in an action for "oney &a! an! recei*e!. If t&e ,oo!s &a*e not yet +een sol! t&en t&e owner is entitle! to possession of t&e" fro" t&e 1u!,"ent cre!itor. In cases w&ere t&e &irer is a tenant of lease&ol! pre"ises an! &e fails to pay rent8 t&e la"3lo$3 "ay re-enter t&e pre"ises an! seiLe all ,oo!s t&erein w&et&er t&ey +elon, to t&e tenant or not. or t&e owner of t&e ,oo!s &ire! to +e protecte!8 &e "ust ser*e notice to t&e lan!lor! t&at t&ose ,oo!s +elon, to &i". =nly t&en can &e repossess t&e". A&ere t&e &irer is a!1u!,e! +ankrupt all &is property *ests in t&e t$6stee in +ankruptcy for !istri+ution a"on, cre!itors. But t&is !oes not apply to ,oo!s let on &ire purc&ase w&en t&e owner ser*es a notice to t&e &irer wit&!rawin, &is consent to possession of t&e &ire! ,oo!s. %&e owner "ust !o t&is before the hirer is ad$udged bankrupt. inally if &ire! ,oo!s are !eli*ere! to a bailee for repair t&e +ailee &as a particular lien on t&e ,oo!s till &is c&ar,es are pai! +y t&e &irer. If t&e owner is entitle! to ter"inate t&e &irin,8 t&e repairer can still clai" a lien as a,ainst t&e owner. In all t&e fore,oin, circu"stances if t&e owner of t&e ,oo!s repossess t&e"8 pri"a facie t&e 7i$e$ cannot clai" relief a,ainst forfeiture of t&e ,oo!s or t&e pay"ents alrea!y "a!e. T&E MINIMUM PAYMENT CLAUSE AN2 2AMA<ES In a!!ition to t&e co""on law owners ri,&t of repossession of t&e &ire! ,oo!s t&e owner "ay seek !a"a,es. >oo!s let on &ire purc&ase depreciate in value +ecause of user. %&e owner seeks to pass t&e risk of !epreciation on to t&e &irer +y pro*i!in, in t&e A,ree"ent t&at t&e &irer s&all "ake a "ini"u" pay"ent for t&e perio! t&e &irer &as use! t&e ,oo!s. %&is is nor"ally la+elle! ?compensation for depreciation# %&e 9uestion is can t&e owner sue t&e &irer for t&e su"s state! in t&e "ini"u" pay"ent clause or can t&e &irer refuse to pay +ecause t&e a"ount is a penalty an! not li9ui!ate! !a"a,esQ Co""on law courts took t&e position t&at it is for t&e" to !eter"ine t&e "easure of !a"a,es paya+le in t&e e*ent of +reac& of contract. If t&e !a"a,es a,ree! +etween t&e parties is not a ,enuine pre-esti"ate of t&e loss likely to +e incurre! upon +reac&8 t&e courts will strike it !own as a penalty.

$1

%&ere are 3 circu"stances un!er &ire purc&ase8 w&ic& in*ite t&e operation of t&e "ini"u" pay"ent clause. 1. In t&e case of t&e &irer2s +reac& of contract8 t&e "ini"u" pay"ent clause will +e re,ar!e! as a penalty an! &ence +e struck out w&ereupon t&e court will assess t&e a"ount of !a"a,es paya+le. In t&e case of *oluntary ter"ination of t&e contract +y t&e &irer +y returnin, t&e ,oo!s t&e "ini"u" pay"ent clause will +e enforce!. %&e "ini"u" pay"ent clause will +e enforce! in t&e case of in*oluntary ter"ination of t&e contract w&ere eit&er t&e hirer dies or becomes bankrupt.

2. 3.

2AMA<ES (OR BREAC& O( CONTRACT If t&e &irer co""its a +reac& of any of t&e ter"s of &ire purc&ase a,ree"ent t&e owner "ay clai" !a"a,es. %&e &irer &as se*eral o+li,ations t&e +reac& of w&ic& ,i*es rise to !a"a,es na"ely 1. 2. 3. $. t&e o+li,ation to ta=e 3eli#e$y of t&e ,oo!s8 t&e !uty to ta=e -a$e of t&e ,oo!s8 t&e o+li,ation to 9ay t7e i"stal5e"ts an! t&e o+li,ation to -o"ti"6e t7e 7i$i"4 for t&e a,ree! perio!.

(ere t&e owner2s ri,&ts upon t&e &irer2s +reac& are termination of t&e a,ree"ent8 an! a claim for !a"a,es. CA'EAT EMPTOR UN2ER &IRE PURC&ASE %&e o+li,ations of t&e owner to t&e &irer are containe! in t&e e.press or i"plie! ter"s of t&e a,ree"ent. Besi!es e.press ter"s t&ere are se*eral i"plie! ter"s 1. 2. %&ere is an i"plie! con!ition in t&e &ire purc&ase a,ree"ent t&at t&e owner of the goods has title to them. %&ere is an i"plie! warranty in a &ire purc&ase a,ree"ent t&at t&e owner in a!!ition to puttin, t&e &irer into possession of t&e ,oo!s will lea*e &i" into peaceful possession of t&e" !urin, t&e currency of t&e a,ree"ent. Peaceful en$oyment- %uiet possession At co""on law t&ere is an i"plie! ter" in all &ire purc&ase a,ree"ents t&at t&e goods are fit for the purpose for w&ic& t&ey are let. At co""on law t&ere is an i"plie! ter" t&at t&e ,oo!s will correspond with their description.

3. $.

It "ay also +e o+ser*e! t&at t&ere is an o+li,ation cast on t&e owner to deliver goods to the hirer. If t&e ,oo!s let un!er a &ire purc&ase a,ree"ent are not fit for t&eir purpose8 t&is

$2

a"ounts to a +reac& of contract t&at entitles t&e &irer to treat t&e contract as repudiatedre$ect the goods and claim for what he has paid as well as damages. Apart fro" lia+ility in contract t&e owner "ay +e lia+le in tort for negligence if &e knew or ou,&t to &a*e known of a !efect in t&e ,oo!s w&ic& causes in1ury to t&e &irer. As a stan!ar! for" contract !rafte! +y t&e owner8 t&e &ire purc&ase a,ree"ent often contains clauses e.clu!in, i"plie! ter"s of t&e contract. %&ese are t&e e&emption clauses or e&clusion of liability clauses. %&e court construes e.e"ption clauses strictly an! su+1ects t&e" to t&e !octrine of fun!a"ental +reac& an! +reac& of a fun!a"ental ter". T&E KENYA &IRE PURC&ASE ACT *0!. Before t&e passin, of t&e Kenyan (ire #urc&ase Act in 156< t&e pre*ailin, law was t&at En,lis& co""on law *i!e t&e In!ian Law of Contract. %&e Kenyan (ire #urc&ase Act co""ence! operation on 2n! ;o*e"+er 15:?. As far as for"alities are concerne!8 /ection 3 stipulates t&at t&e Act applies to all (ire #urc&ase A,ree"ents for ,oo!s w&ose &ire purc&ase price !oes not e.cee! t&e su" of / D KC. %&is is *ia an a"en!"ent to t&e Act w&ic& was "a!e in 1551 an! at t&e ti"e of t&e enact"ent t&e financial ceilin, was only <?8???IR. /econ!ly t&e Act !oes not apply to bodies corporate who are hirers. %&e assu"ption of t&e statute is t&at if you are a pri*ate li"ite! lia+ility co"pany you "ee3 "o 9$ote-tio" fro" t&e (ire #urc&ase Act. It is assu"e! co"panies can take care of t&e"sel*es. Also assu"e! t&at anyone w&o can enter into a &ire purc&ase a,ree"ent for "ore t&an 3??8???Iis capa+le of takin, care of &i"self. Se-tio" , esta+lis&es a re,istry of (ire #urc&ase A,ree"ents presi!e! o*er +y a re,istrar8 &is or &er !eputy an! assistant. By *irtue of Se-tio" +?*@ of t&e statute all &ire purc&ase a,ree"ents "ust +e re,istere! wit&in / 3ays of e.ecution upon pay"ent of a re,istration fee. But t&ere is a !iscretion *este! in a re,istrar to e.ten! t&e ti"e for re,istration if satisfie! t&at t&e failure to re,ister was acci!ental or ina!*ertent. %&e conse9uences of non-re,istration are ,ra*e for t&e owner un!er Se-tio" +?,@. 1. 2. ;o person s&all +e entitle! to enforce t&e a,ree"ent a,ainst t&e &irer or any contract of ,uarantee an! t&e owner cannot recover the goods fro" t&e &irer. .o security given by the hirer or guarantor shall be enforceable.

En!er Se-tio" +?2@ t&e a,ree"ent "ust +e in t&e En,lis& lan,ua,e. %&e infor"ation t&at "ust +e containe! in t&e A,ree"ent is pro*i!e! for in Se-tio" ! of t&e statute. 1. 2. %&e cas& price of t&e ,oo!s as well as t&e &ire purc&ase price "ust +e state!. /econ!ly t&e a"ount of eac& instal"ent an! a perio! of repay"ent "ust +e state!.

$3

%&e re9uire"ent as to t&e cas& price "ay +e satisfie! in two ways as per /ection 6C1D 1. If t&e &irer &as inspecte! t&e ,oo!s or like ,oo!s an! at t&e ti"e of &is inspection tickets or la+els were attac&e! to or !isplaye! wit& t&e ,oo!s clearly statin, t&e cas& price eit&er of t&e ,oo!s as a w&ole or of all t&e !ifferent articles co"prise! t&erein t&en t&e re9uire"ent as to t&e cas& price is satisfie!. If t&e &irer &as selecte! t&e ,oo!s +y reference to a catalo,ue8 pricelist or a!*ertise"ent w&ic& clearly state! t&e cas& price eit&er of t&e ,oo!s as a w&ole or t&e !ifferent articles t&en t&e re9uire"ent as to t&e cas& price is fulfille!.

2.

;on co"pliance wit& t&e pro*isions of /ection 6 will "ake t&e a,ree"ent unenforcea+le a,ainst t&e &irer an! t&e ,uarantor. %&ere are so"e ot&er re9uire"ents un!er /ection 6. - %&e a,ree"ents "ust +e "a!e an! si4"e3 by t7e 7i$e$ an! +y or on +e&alf of all t&e ot&er parties. - It "ust contain notice in a pro"inent for" stipulatin, t&e ri,&ts of t&e &irer w&ic& are +asically t&e $i47t o% t7e 7i$e$ to te$5i"ate t&e a,ree"ent an! t&e $est$i-tio" o" t7e ow"e$Hs $i47ts to $e9ossess t&e ,oo!s. - A copy of t&e a,ree"ent "ust +e !eli*ere! or sent +y re,istere! post to t&e &irer wit&in 2* 3ays of t&e !ate of t&e a,ree"ent. Se-tio" > !eclares t&at certain pro*isions if containe! in t&e (ire #urc&ase A,ree"ent will +e a+solutely *oi!. %&ese are@ 1. 2. 3. $. Any pro*isions t&at allow t&e owner of ,oo!s or &is a,ent to enter the 1irers premises to retake possession of t&e ,oo!s. Any pro*ision t&at atte"pts to prevent the hirer from terminating the agreement as pro*i!e! for in /ection 12 of t&e Act or Any pro*isions t&at adds e&tra liabilities should the hirer terminate t&e a,ree"ent3 Any pro*ision t&at atte"pts to relieve the owner of goods from liabilities for the default of these agents3

%&e section t&erefore stan!s out as an atte"pt to re!uce t&e !octrine of free!o" of contract an! to mitigate the harshness of the imposed standard form contract. REPOSSESSION & T&E MINIMUM PAYMENT CLAUSE Se-tio" *+ ?*@ of t&e (#A pro*i!es t&at w&ere ,oo!s &a*e +een let un!er a &ire purc&ase a,ree"ent an! two t&ir!s of t&e &ire purc&ase price &as +een pai!8 t&e owner s&all not enforce any ri,&t to reco*er possession of t&e ,oo!s ot&erwise t&an +y suit. If t&e owner contra*enes t&is pro*ision t&e &irer is i""e!iately release! fro" lia+ility un!er t&e A,ree"ent. /econ!ly t&e &irin, ter"inates an! t&e &irer can reco*er +y suits all "oneys pai! out +y &i". It &as +een ar,ue! t&at t&e /ection ,i*es t&e &irer so"e protection alt&ou,& t&at protection is B&alf-&earte!J. Mentione! +y #rofessor Mutun,a an! #iciotto an! A&itfor! an! Mcneil

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Se-tio" *2 ?*@ allows t&e &irer to ter"inate t&e a,ree"ent +y ,i*in, notice in writin, to t&e owner. If &e !oes so8 t&e minimum payment clause co"es into operation w&ere+y &e will &a*e to pay upto 5?S of t&e (ire #urc&ase #rice or less s&oul! t&e a,ree"ent so stipulate. CON2ITIONSD )ARRANTIES & ELCLUSION CLAUSES %&e (ire #urc&ase Act i"poses i"plie! ter"s an! restricts t&eir e.clusion. Se-tio" . ?*@ ?a@ i"plies a con!ition t&at t&e owner will &a*e a ri,&t to sell t&e ,oo!s at t&e ti"e w&en property is to pass. /econ!ly <C1D C+( i"plies a warranty t&at t&e &irer s&all &a*e an! en1oy %uiet possession of t&e ,oo!s. %&ir!ly Section 0'*('c( i"plies a warranty t&at t&e ,oo!s will +e free from any charge or encu"+rance in fa*our of a t&ir! party at t&e ti"e w&en property is to pass. En!er Se-tio" .?*@ ?3@ t&ere is an i"plie! con!ition t&at t&e ,oo!s are of merchantable %uality unless t&ey are secon! &an! ,oo!s an! t&e a,ree"ent says so. urt&er"ore t&is i"plie! con!ition is negatived in those cases where the hirer has e&amined ,oo!s or a sa"ple t&ereof an! t&e e.a"ination ou,&t to &a*e re*eale! t&e !efect or w&ere t&e owner coul! not &a*e reasona+ly !etecte! t&e !efect. %&ere is a furt&er i"plie! con!ition un!er Se-tio" .?2@ to t&e effect t&at t&e ,oo!s are reasonably fit for t&eir purpose w&ere t&e &irer w&et&er e.pressly or +y i"plication &as "a!e known t&e particular purpose for w&ic& t&e ,oo!s are re9uire!. It s&oul! +e note! t&at t&e i"plie! con!itions as to sa"ple an! !escription are not e.pressly state! in t&e (ire #urc&ase Act unlike in t&e /ale of >oo!s Act w&ere t&ey are. In fact /ection <C$D of t&e (#A refers +ack to t&e En,lis& co""on Law w&ere an i"plie! ter" as to !escription is a*aila+le to &irers +ut it is not clearly so for t&e i"plie! con!ition as to sa"ple. inally it s&oul! +e note! t&at Se-tio" .?/@ pro&i+its t&e parties fro" contractin, out of t&e i"plie! con!itions an! warranties. %&is section t&us limits the use of e&clusion clauses to e&clude liability for !efect in t&e ,oo!s an! t&us ,i*es protection to t&e &irer. MISCELLANEOUS PRO'ISIONS Pa$t I' of t&e (#A !eals wit& aspects relatin, to -7a"4e o% a33$ess an! $e5o#al o% 4oo3s fro" pre"ises. It also !eals wit& re"o*al of ,oo!s fro" Kenya w&ereupon t&e &irer &as to infor" owner of t&e ,oo!s of t&eir re"o*al an! is not per"itte! to procee! wit&out per"ission. It also !eals wit& t&ose situations w&ere t&e court "ay allow ,oo!s to +e re"o*e!. Pa$t 'II of t&e (#A !eals wit& licensin, of (ire #urc&ase +usinesses. In or!er to operate one "ust &a*e a licence. A&ere t&e licence is refuse! t&ere are pro*isions for appeal to t&e "inister an! t&ere is a pro*isions t&at t&e licences if ,rante! &a*e to +e !isplaye!.

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=t&er "iscellaneous pro*isions are containe! in /ections 2$8 t&rou,& to 35 +ut t&ese !o not fun!a"entally alter t&e &ire purc&ase transactions. OT&ER SECURITIES %&ese are +asically 1. >uarantee 2. In!e"nity 3. Bail"ent $. #le!,e I#awn 5. Lien 6. Letter of (ypot&ecation :. Mort,a,eIC&ar,e <. )e+entures 5. C&attels %ransfer C&attels %ransfer Act Cap 2<

$6