Bankruptcy could sound death knell for anyone

By Dann Okoth

With the hard economic times many companies are facing financial difficulties with some being pushed to the brink.

At such times the term ‘personal bankruptcy’ is common at the individual level. But borrowers should ensure that a court of law does not declare them bankrupt because the consequences are severe.

Bankruptcy is the legal status of an individual against whom an adjudication order has been made by the court primarily because of his inability to meet his financial liabilities.

An adjudication order in bankruptcy is a judicial declaration that the debtor is insolvent.

Upon adjudication, all property belonging to the bankrupt, vests in the official receiver for distribution among his creditors.

Section 139(a) of the Bankruptcy Act states that a bankrupt person must not either alone or jointly with any person obtain credit to the extend of 10 pounds (about Sh1,300) or upwards from any person without informing them that he is an undercharged bankrupt.

Section 139(b) says the bankrupt must not engage in any trade or business under a name other than that under which he was adjudged bankrupt without disclosing to all persons with who he enters into any business transactions the name under which he was adjudicated.

High Court advocate

Under section 35(1)(d) of the Constitution, a bankrupt person is disqualified from being an MP and if elected, he would have to relinquish the seat.

A bankrupt person cannot act as an advocate of the High Court under section 32 of the Advocates Act.

Where a receiver order has been made, the official receiver applies to the court for the appointment of a time and place for the public examination of the debtor.

Once an official receiver steps in no proceedings can be brought against the debtor except with leave of the court.

Hence when a receiving order has been made the official receiver or any creditor may apply to the court to adjudge the debtor bankrupt.

A receiving order does not make the debtor bankrupt nor does it deprive him of the ownership of the property. It is only the possession and control of his property that are taken away from him.

Prominent Kenyans have been declared bankrupt including freedom fighter and former Cabinet Minister Paul Ngei. Ngei was declared bankrupt after creditors presented a bankruptcy petition against him.

Other prominent personalities who have faced bankruptcy charges include former Molo MP, Njenga Mungai. The bankruptcy charges against the former MP were however later set aside by the High Court.