Under the laws of Kenya, bankruptcy is the declaration made against a person by a court after it is found that the individual is unable to meet his or her financial liabilities.
Kenyan Bankruptcy laws are governed by the Bankruptcy Act Cap 53.
Confusion arises between insolvency and bankruptcy.
The term bankruptcy applies to individuals while liquidation relates to insolvency proceedings involving a body corporate.
Bankruptcy has the effect of transferring to the trustee all rights that the bankrupt had over his property.
If a person is unable to pay his or her debts whether in the exercise of a court decree or in normal business, a bankruptcy suit can be filed against him.
A bankruptcy filing can either be one’s volition or by action of his creditors.
Once a debtor commits an act of bankruptcy, the creditors can apply to court for protection of the estate by means of a receiving order where the official receiver takes over the property.
When a receiving order is made, a meeting of creditors is held to discuss how to deal with the debtor’s property.
The debtor is required to give a statement on his assets and liabilities.
On voluntary bankruptcy, when one is overwhelmed by debts, he or she may apply to the court to be declared bankrupt by indicating in the petition inability to meet financial obligations.
Nation Media Group legal officer Sekou Owino says bankruptcy is not just about being poor or broke but owing more that one can pay or in other words, the person’s assets are outstripped by the debts.
“A millionaire can still be bankrupt if he owes billions,” Mr Owino says.
And according to Caroline Lichuma, a law lecturer at Nairobi’s Riara Law School, one of the most dramatic effects of a bankruptcy order is the vesting authority in a bankruptcy trustee.
A trustee is the person in charge of the bankrupt’s assets.
In the case of Mr Cyrus Jirongo who was recently declared bankrupt over inability to pay businessman Sammy Boit arap Kogo Sh700 million, his assets will be under the custodian of a trustee who has the legal right to dispose of the property to pay his debts.
Ms Lichuma argues Mr Jirongo is only allowed to retain necessary household furniture and personal effects (including clothing) and those of his relatives and dependants subject to the figure fixed by the trustee.
He will also be allowed to keep a motor vehicle (subject to a limit of Sh1 million).
The law additionally provides that the bankruptcy trustee may allow the bankrupt individual to retain Sh100,000 for his immediate maintenance.