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MT Kenya University School Of Law Nairobi Campus Essay Sample

MT Kenya University School Of Law Nairobi Campus Pages
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The Bankruptcy Act, Cap 53, Laws of Kenya has over the years been in need of amendment and reforms especially now in light of the provisions in the Constitution of Kenya, 2010. Many efforts have been made to improve this law through the proposed and tabled Insolvency Bill 2012, Insolvency Bill 2013 and Insolvency Bill 2014. Critically examine the salient features, reforms and innovations relating to individual insolvency as enshrined in the Kenyan Insolvency Bill 2014 as contrasted with the Bankruptcy Act, cap 53, Laws of Kenya.

The Kenyan Insolvency Bill 2014 is a bill in parliament that seeks to amend and consolidate the law relating to the insolvency of natural persons and incorporated and unincorporated bodies if enacted in law. It also seeks to provide alternative procedures to bankruptcy that will enable the affairs of insolvent natural persons to be managed for the benefit of their creditors; to provide for the liquidation of incorporated bodies (including solvent ones) as well as to provide as an alternative to liquidation procedures that will enable the affairs of such of those bodies as become insolvent to be administered for the benefit of their creditors; and to provide for related and incidental matters1

The bill if enacted seeks to repeal and replace the Bankruptcy Act (Cap. 53) to simplify the procedures in bankruptcy and insolvency. It also seeks to encourage the dissolution of non-viable and inefficient businesses and the survival of the efficient ones and to maximize the value of liquidated assets. It provides for independent administration to take control of a business at the point of insolvency, provide for an equitable distribution of liquidation assets among creditors andprovides effective mechanisms for indemnifying and prosecuting managers and directors whose illegal actions contribute to the insolvency of a firm.

The Kenyan Insolvency Bill 2014 incorporates a proposed set of Cross-Border
Insolvency Regulations as the 5thschedule to the Bill. Clearly, the Bill is significantly in line with the UNCITRAL Model Law on Cross-Border Insolvency.2 The Insolvency Bill 2010 does not restrict its application to foreign jurisdiction and proceedings on a basis of a requirement for reciprocity.3It appears that the intention is to welcome any application from any jurisdiction whether or not it is from a jurisdiction that has adopted the Model Law or one that has any reciprocal co-operation with Kenya. This can be contrasted with the provisions of section 151 of the Bankruptcy that provided recognition of bankruptcy only in reciprocating jurisdictions as declared by the Minister.

The Bill introduces alternatives to bankruptcy under Section 14 that provides “A debtor who is insolvent may as an alternative to bankruptcy (a) Enter into a voluntary arrangement in accordance with Division 1 of Part IV; (b) Make a proposal to creditors in accordance with Division 2 of Part IV; (c) Pay creditors in instalments under a summary instalment order under Division 3 of that Part; (d) Enter the no asset procedure in accordance with Division 4 of that Part.”5The Bill provides that an application for a Debt Settlement Arrangement or a Personal Insolvency Arrangement must be made by a debtor through a Personal Insolvency Practitioner or PIP. The debtor is entitled to appoint any authorised PIP of his or her choosing.The underlying philosophy of the Debt Settlement Arrangement and Personal Insolvency Arrangement is that the insolvent debtor will, with the assistance of a personal insolvency practitioner, put forward what the debtor considers to be a realistic offer to his creditors, one that will restore the debtor to solvency with a reasonable period while, at the same time, giving creditors a better financial outcome than the alternatives of debt enforcement or bankruptcy. The alternatives to bankruptcy were however not provided under the Act.

Section 6(1) (a) of the Act provides thatA creditor shall not be entitled to present a bankruptcy petition against a debtor unless the debt owing by the debtor to the petitioning creditor, or, if two ormore creditors join in the petition, the aggregate amount of debtsowing to the several petitioning creditors, amounts to one thousandshillings…;”6 The bill however seeks to raise the amount from Kshs 1,000 to under Section 2 (1)(5) to Kshs 75,000/= as the bankruptcy level.7

Both the Bill and the Act have different ranking on the priority of debts. The Act under Section 38 (1) providesIn the distribution of the property of a bankrupt, there shall be paid in priorityto all other debts— taxes due to the Government and local rates due from the bankrupt at the date of the receiving order, rents due to the Government not more than five years in arrears, salaries and wages of any clerk or laborers not exceeding four thousand Kenya Shillings provided that amounts due in respect of compensation or liability for compensationwhich are given priority under the provisions of section 27 of the Workmen’s Compensation Act (Cap. 236), amount due in respect of contributions payable during the period of twelve months immediately preceding the date of the receiving order by the bankrupt as the employer of any person under the NationalSocial Security Fund Act (Cap. 258). Sub section (2) provides that the foregoing debts shall rank equally between themselves, and shall be paid in full, unless the property of the bankrupt is insufficient to meet them, in which case they shall abate in equal proportions between themselves.8

This is unlike the more reasonable approach exhibited under the proposed bill that provides the priority to be as follows under the Second schedule.9 Section 3(2)provides that the expenses of the bankruptcy or liquidation have first priority after this,all wages and salaries are then paid. After wages amounts due to the government in form of taxes and rents now are payable at this stage.Unlike as provided under the Bankruptcy Act the Bill proposes a Limit of Kshs 200,000 under this head instead of Kshs 4,000

The Bill is an indication of the growing awareness and need of an effective insolvency law addressing modern challenges of personal insolvency issues. Previously insolvency related laws recorded not only low awareness among the various stakeholders and general public but also remained largely in disuse maybe due to the inadequacy or ineffectiveness of the same. However, it remains to be seen whether the current reform initiative will bear any fruit. And indeed, whether the Bill will eventually be enacted into law as it is or in a different version and if so whether the implementation of the resulting law will eliminate the uncertainties and unpredictability that are in place as to the manner in which relevant authorities, courts in particular, may approach and deal with various issues emanating from the said bill

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