INSOLVENCY LAWS

What to consider while applying for insolvency

The Insolvency Act N0.18 of 2015 did revolutionize the State laws on bankruptcy. The key objectives of the laws being;

  • To secure an equitable distribution of the debtor's property among creditors
  • To relieve the debtor of his liabilities 
APPLICATION BY A DEBTOR  FOR A BANKRUPTCY ORDER:
Under Sec 32 of the Act, a debtor can apply for a bankruptcy order because of his inability to pay debts. This application should be accompanied by the debtors financial position indicating the nature of assets and liabilities.

The Key requirement is to notify Creditors of the application through publication in a paper of nationwide circulation and in the Kenya Gazette to allow objections before its hearing.

WHAT TO AVOID AS DEBTORS IN BANKRUPTCY PROCEEDINGS.
  1. It is noteworthy that bankruptcy is seen as the last resort because it has grave consequences for debtors and creditors.
  2. When going to court for orders for bankruptcy you must observe the following;
                    - Material disclosure when making the application
                    - You must ensure that your application is properly filled by issuing all necessary notices 
                       to the creditors to avoid ambush.
                    -  Ensure you are not guilty of concealment of Assets.

It is  well settled law that he who comes to court with clean hands has come in good faith. The contrary reveals that equity shall not suffer a wrong without  a remedy. The bankruptcy Act provides  a remedy to counter uncalled for bankruptcy orders by annulment.

ANNULMENT OF BANKRUPTCY ORDERS
The annulment of a bankruptcy order effectively cancels the original bankruptcy order. This is provided for Under Sec 272 of Act. 

THE GROUNDS FOR APPLYING TO ANNUL A BANKRUPTCY 
Under sec 272 of the Act, where such as application has been made the court may annul a bankruptcy order. Application for annulment may be premised on the grounds; inter alia;

  • The orders ought not to have been made in the first place;
  • There was a procedural irregularity (say, where service of the bankruptcy petition was defective or incomplete)
  • Material non-disclosure
Noteworthy, the grant for an order of annulment is discretionary in nature and upon the same being granted the insolvency register held at the office of the official receiver ought to be rectified.

In the case of INSOLVENCY CAUSE N0.6 OF 2018 (2021] KEHC 6 (KLR) (Commercial and Tax) the Court in determining a bankruptcy petition observed that:

  1. The Law provides a debtor to seek relief from unmanageable debt through bankruptcy.
  2. Bankrupcy is an option of last resort because it has serious consequences.
  3. A bankruptcy petition must be made in good faith and with full material disclosure.
  4. The petition must be Gazetted in the Kenya Gazette and in the newspaper to afford creditors the opportunity to come forward to either oppose or support the petition.
  5. The debtors statement of financial position must attain the three- prong test credibility,reliability and probability.
A Petitioner who intends to seek  a Bankruptcy order must be candid and forthright about his/her state of affairs and fully disclose.  Now the laws on Bankruptcy have become prone to abuse by fraudsters, its imperative to implore upon them of the import of Section 272 of the Insolvency Act 2015. 

Disclaimer; This article is meant for education purposes only and should not be construed as a piece of legal advice. For any legal inquiries reach me on whatsapp 0716912966; FB @wakiliWanguKimure.


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