INDIVIDUAL INSOLVENCY.

BANKRUPTCY.

BANKRUPTCY PETITIONS.

Kangi v Sydney moss

OBJECTIVES OF BANKRUPTCY.

a. It assists the debtor as the debtor will be entitled to make a fresh start and discharged
free from the demand of creditors.
b. It protects creditors as it prevents debtors from disposing off property when bankruptcy
as inevitable. The law also allows to distribute debtors assets among creditors in a swift
and economic manner.
c. If a person is in a hopeless financial problem it is desirable that the fact be recognized
and a procedure be followed in which assets are disposed in an official manner and
realized for division among his creditors equitably and for their maximum advantage
d. It benefits the community. It is in the interest of the community if a person is hoplessly
in debt to give the debtor an opportunity to make a start other than become a burden to
the community. A person who is undischarged bankrupt has a limited capability to
contract which also benefits the community.
e. Protects honest debtors.

Advantages and disadvantages of bankruptcy

a. Advantages to creditors.

The act seeks to provide creditors with equitable and proportionate distribution of the
debtor’s assets. Ordinarily creditors are treated on equal basis and receive prolator pay out
after a debtor’s assets have been sold

b. DISADVANTAGE TO THE CREDITORS.

The creditors must wait until the trust of the bankrupt estate has deducted his fee for the
administration of the estate before assets have become available for distribution. It therefore
reduces the amount for distribution.

The creditors may also be required to pay to court costs associated with the recovery of the
assets.

Complex bankruptcy proceedings may lust for many years and require creditors attend many
meetings and suffer numerous delays while trustees perform their role.

c. ADVANTAGES TO THE DEBTOR.

Bankruptcy enables the person to avoid being sued by the creditors for debts which arose before
the bankruptcy.

It allows the debtor to make a new start if he has corperated with the administration of the
estate.

d. DISADVANTAGES TO THE DEBTOR.

The bankruptcy will loose most of their property and depending on their earning will have to
make contributions to their estate from their income

There is stigma attached to bankruptcy with public embarrassment. A bankrupt can not access
credit in excess of a certain amount without expressing his bankruptcy.

An undischarged bankrupt can not become a director of a public company without court’s
permission and he is disqualified form engaging in different activities in different legislations.

REASON FOR BANKRUPTCY.

1. Consumer debt With the advent of credit cards and availability of financial facilitie some
people commit themselves to heavy payment without assessing their financial situation.
Problems arise where a persons income fails to meet their expenditure.
 2. Lack of business and investment skills. It is common for people to commence business
with inadquate amount of capital. In addition people may make investment decision
without any training or professional advise. The result is often bankruptcy.
3. Unforeseen liabilities. Many individual business get in financial difficulties for reasons
that were never contemplated e.g. a person may find themselves liable for personal
injury, product liability or occupiers liability claims.
4. Changes in economic, political climate. The success of many businesses is tied to
prevailing economic or political climate which may cause financial difficulties..

CAPACITY TO BECOME A BANKRUPT.

As a general rule any person who has capacity to contract may be made bankrupt by the
position of a person having imperfect contractual capacity may be noted.

An infant [minor] can be declared bankrupt in relation to debts that are legally enforceable i.e.
contracts for necessaries and beneficial contracts of service. But before a minor can be made a
bankrupt on a contract of necessaries the court must have pronounced that the goods are
necessaries.

Person of unsound mind may be made bankrupt so long as the debts are incurred based on the
general law. Such a person is incapable of committing an act of bankruptcy which requires
intent on his part. He cannot therefore be declared bankrupt.

Deceased persons: He or she cannot be made bankrupt but his estate may be administered in
bankruptcy. A petition may be made by the creditor or by the administrator.

WHO IS A DEBTOR?

A debt or is not defined under the Act as was in the case of S.2[2] of the repealed Act. A debtor
includes any person whether domiciled in Uganda or not who at any time when any act of
bankruptcy was done or suffered by him was

a. personally present in Uganda.

 b. ordinarily resident in Uganda
c. personally carrying on business in Uganda or by means of agent/manager
d. a member of a partnership/firm carrying on business in Uganda.

Under the Insolvency Act, it has left it open for any one who fails to pay debts to be regarded as
a debtor.

Larene v IRC 1928 AC 217

Craham v LEWIS 1988 QB 22

Re sarflex ltd 1979 ch 592

CREDTORS PETITION

S.20[2] lays down the conditions for presentation of the creditor’s petition. The section indicates
that a creditor commences proceedings upon failure by the debtor to satisfy statutory demand
under S.4 and the court may subject to S21 and S.22 which deal with statement of affairs and
public examination of affairs make a bankruptcy order in respect of the debtor

The petition may be presented by a single creditor or more acting jointly. A petition may be
presented by the creditor.

A secured creditor cannot present a petition unless in it he states that he is willing to give up his
security.

Creditor’s petitions are heard by court which require proof of the matter stated in the petition
verified by a statutory declared..

After a petition has been made under S.20, the debtor must draw up and submit to the official
receiver a statement of affairs in a prescribed form giving particulars of his assets, debts and
liabilities, as required by S.21. not latter than 14 days after making of the receiving order, there
is a meeting of the creditors which decide whether any arrangement shall be accepted or
whether the debtor shall be made bankrupt. Read Ss.119, 120 and 124

look at the following

1. central purchasing ltd v kahindootafire 2002=2004 uganda commercial law Rep 118
2. kanji v Sydney Moss [1957] EA 40
3. shekhmohammedbashil v comm of income tax [1961] EA 240 and 255

Usually the debtors inability to pay the debt is determined by the service of a statutory demand
In Re a Debtor [1987] 1989 2 Aller 46

the court of appeal refused to set aside a statutory demand on the grounds that it was
perplexing [confusing] because the debtor could not show that he had suffered any prejudice as
a result.

The case of Re Marr [bankrupt [1990] ch 773] COA the court of appeal held that where the debt
is no longer outstanding at the date of hearing the petition, the petition must be dismissed.

DEBTOR’S PETITION

S.20[1] provides that a debtor may petition court for bankruptcy alleging that he is unable to
pay his debts and the court may subject to submission of a statement of affairs and public
examination of a debtor make a bankruptcy order in respect of a debtor.

The bankruptcy order shall declare the debtor bankruptcy and shall appoint the official receiver
as the interim receiver of the estate for the preservation of the estate of the bankrupt.

A bankrupt is defined in S.2 as an individual in respect of whom a bankruptcy order has been
made. When a debtor issues a debtor’s petition then it is the debtor who has commenced the
bankruptcy. This is known as voluntary bankruptcy.

The petition is accompanied by a statement of affairs under S.21. a statement of affairs is a list
of the person’s assets and liabilities. The debtor is required to provide the name address and
amount owed to each creditor.

It must include full details of the debtor’s income and property owned by the debtor including
land houses cars, bank accounts, stock and shares and any money owed to the debtor under
S.21[2] once the petition and statement of affairs are accepted by the official receiver, the debtor
will automatically become bankrupt.

A bankruptcy order results in property which is owned by the debtor upto the date of the
bankruptcy vesting in the official receiver or registered trustee.

Property acquired after the bankruptcy order also vests in the official receiver or the registered
trustee. The bankruptcy is administered by the official receiver unless a registered trust has
been appointed.

S.20[4] provide powers to the official receiver to sell or dispose of any perishable property and
any other goods the value of which is likely to diminish if they are not disposed of. In Re
Jackson exparte Jackson 1989 EA at 145. It was held that it is not only presentation of the
debtor’s petition which makes a debtor bankrupt. It is the court’s acceptance of the petition and
endorsement of that acceptance

According to S.20[5] bankruptcy commences on the date on which the bankruptcy order is
made

Read;

Re Thomas Kato 2002-2004 Ug commercial LrP AT 8385

PROCEEDINGS AFTER THE PETITION

S.21 provides for statement of the debtor’s affairs. A debtor is called upon to make a statement
of his affairs and it must be made within 14 days after the order in accordance with S.24. if a
debtor fails to submit a statement of affairs within the time allowed, the court may adjudge him
bankrupt on the application of the official receiver or any creditor but the court may allow an
extension of time in specific circumstances mentioned in S.21[3]

This statement must be verified by affidavit and must show particulars of the debtor’s assets
and liabilities including the following:

1. the names, residencies and occupation of his creditors.

2. The dates on which securities were given
 3. Any further information

S.21[3] provides that if a debtor fails to submit the statement, he commits an offense and he is
liable on conviction to a fine not exceeding 24 currency point or imprisonment not exceeding
oneyear or both

After having filed with the official receiver, the statement of affairs can be effected by any
person who states in writing that he is a creditor of the debtor’s estate and a copy or extract may
be taken from the records.

A creditor can appoint an agent to do this for him under S.22[3]

If the debtor intends to put before the meeting of his creditors, any proposals for the payment of
his debts, he must apply for an interim order under S.119 and 120. In R v. Pike 1902 1 qb 552 it
was held that a statement of affairs prepared by a bankrupt, is admissible in evidence against
him in criminal proceedings and hence it is understandable that a bankrupt who has something
to hide may be tempted to omit the incriminating information or even decline to submit any
statement of affairs

NanubhaiBapalalTrivedi v the official receiver 1960 EA 422

The appellant filed his own petition in bankruptcy and a receiving order was made. His
liabilities were 2755 pounds and his assets were 147 pounds comprising of 30 pounds in cash
and the balance in book debts. He proposed a composition under which the creditors should be
paid their claims in full by six equal half yearly payment. The first payment to be made six
month after approval of the scheme by the court. The composition was accepted by a majority
in number and more than 3/4th in value of the creditors andwas approved by the official
receiver.

A senior resident magistrate exercising the bankruptcy jurisdiction of the Supreme Court
delegated under S.96 of the Bankruptcy Ordinance rejected the scheme on the ground that the
court should not approve the continued carrying of the business by the appellant.

The appellant appealed and submitted that the magistrate had exercised his discretion on the
wrong principles, it was held by the court of appeal that
 1. What had influenced by the magistrate was that the appellant had not showed any
capital with which to carry on his business such as to suggest a likelihood of success and
to permit him to conduct business which was insolvent at it inception would be contrary
to public policy
2. The court would not say that the magistrate was wrong in refusing to sanction the
scheme which was likely to result in further liabilities being incurred which the
appellant would be unable to meet
3. The proposed scheme did not provide reasonable security for the payment of not less
than five shilling in the pound and according the court was bound under S.18[10] of the
bankruptcy ordinance to refuse approval of the proposed scheme

In Re paineexpartepaine 1891 weekly notice [wn] 8208 sighten in trivade case supra.

ARRANGEMENT WITH CREDITORS:

S.119 provides that a debtor who intends to make any arrangement with his creditors may
apply to court for an interim protective order. The interim order stays off an application for
bankruptcy, proceedings cannot continue.

Another effect of the order is that no receiver can be appointed. Also no steps can be taken to
enforce any charge or execution or any legal process can be commenced or continued against
the debtor and no discreet can be levied against the debtor

S. 119[3] when the debtor is an undischarged bankrupt, the interim order may contain
directions on the conduct of the bankruptcy and administration of the estate. S.120[2] the court
may make an interim order if it is satisfied that the debtor intends to make an arrangement and
where the debtor is an undischarged bankrupt he has given notice of the intention to the trustee
of his estate. According to S.121, the duration of the order is 14 days after it has been issued- See
S.121

After the order, the debtor must submit to the proposed supervisor, his proposed arrangement
and the statement of affairs required under S.122
The proposed supervisor has to give a report to court in accordance with S.124, in writing
stating his opinion whether a creditor’s meeting should consider the proposed arrangement. If
the proposed supervisor falls to provide a report the court may direct a replacement or direct
the order to continue for another period. The proposed supervisor may also apply for an
extension of the order.

After considering the report, the court may order for a supervisor to call a creditor’s meeting to
considered the proposed arrangement as provided by S.123[4] or it can discharged the order if
the court is satisfied that the debtor has failed to comply with his obligation

An arrangement provides for affairs of the debtor with the view to the payment of the whole or
part of the debtor’s debts. This is the most flexible option if creditors can be convinced that a
person can trade out of their financial difficulties

The creditors also start to benefit by such an arrangement in as much as the debtor’s estate can
usually be wound up more quickly and less expensively than by official proceedings in
bankruptcy.

6/3/2015

CREDITOR’S MEETING TO CONSIDER PROPOSED ARRANGEMENTs

s. 124 provides that the proposed supervisor has to call a creditor’s meeting not letter than 14
days after making the order

there must be a general notice of not less than two working days published in the gazette and in
the official language in the news paper of wide circulation in Uganda and a written notice sent
to each known creditor of the debtor giving full particulars of the meeting as provided for by
S.124[2]

S.124[4] indicates that the proposed supervisor chairs the meeting of creditors which shall
consider the proposed voluntary arrangement. The meeting is conducted in accordance with the
rules set out in the third schedule in the Act. Read….
Creditors may resolve to approve the proposed arrangement or with modifications subject to
the consent of the debtor.

Where the proposed arrangement affects the rights of a secured creditor the other creditors may
only approve it with the consent of the secured creditor concerned

The creditor’s meeting cannot approve any arrangement that affect the position of any
preferential debt except with the written consent of the preferred creditor concerned.
Preferential debts refers to debts mentioned in S.12[4][5][6] of the Act

After the meeting the proposed supervisor shall report the results of the meeting to the court as
required by S.125.

S.125[2] that “where the meeting declines to approve a proposed arrangement the court may
discharge, vary or extend the interim order under S.119 or make any other appropriate order as
its fit and the debtor can be given one more chance to present a second proposal

S.125[2] provides that where a meeting approves a proposed arrangement the court may make
an arrangement order,

a. to make ancillary direction,

b. if an undischarged give certain direction on the conduct of the bankruptcy and
administration of the estate. Arrangement must be given as required by S.126
c. and administration of the estate

see Section 126- notice of arrangement

MEETING OF CREDITORS AND APPOINTMENT OF THE OFFICIAL RECEIVER..

This is provided for by S.24. the official receiver is required within 14 days after the
commencement of the bankruptcy to give public notice of the debt of commencement of the
bankruptcy and call the creditors first meeting. Public notice is defined in S.2 and S.256.

The official receiver must insert one notice in atleast one issue of the official notice of the gazette
and one issue of a news paper of wide circulation
The principle mater for discussion at the meeting of the creditors will be the statement of affairs
presented by the debtor.

The debtor must be present at the first meeting unless good cause is shown for his absence. The
course which is open to the creditors at the first meeting or any subsequent meeting is to agree
on arrangement. Refer to the rules in the Schedule on proceedings at meetings of creditors.

Under S.25, the creditor’s first meeting appoints a trust and vests the bankruptcy’s estate in the
trust

Five days after the trustee’s appointment the trust shall give public notice of his full names,
address, telephone and electronic address and the debt of commencement of bankruptcy. Refer
to the Rules in Schedule.

THE PUBLIC EXAMINATION OF THE DEBTOR

This is provided for by S.22, where a petition for a bankruptcy order is presented to the court
under S.20 the court shall direct that a public examination be held [section 20 is a beginning of
bankruptcy]

A debtor may under go a public examination as to his conduct, dealings and property. Though
the court may in a special case rescind the order in public examination where the debtor has
reached an arrangement with his creditors. The debtor is not publically examined where he is of
an unsound mind or he is so physically disabled as to be in the opinion of the court unfit to
attend

The public examination is held as soon as possible after the debtor has submitted his statement
of affairs

The official receiver applies to the court and the court by order appoints a day and hour for the
public examination.

A copy of the order is served on the debtor by the official receiver and he also gives creditors
notice of the order.
At the public examinations, the debtor is first questioned by the official receiver or by the
trustee if one has been appointed. The creditors who tendered proofs may also question the
debtor as may members of the court itself.

Questions relating to the debtor’s property and affairs must be answered even if the answer
incriminates the debtorS.22[7]

A debtor who refuses without good reason to attend his public examination may be committed
to prison for contempt of court

in Bishopgate investment management ltd v Maxwell 1992 2 ALLER p.556, the court of appeal
held that it was well settled that as so far as the bankrupt is personally concerned, no privilege
against self incrimination can be invoked either at a private examination or public examination

THE BANKRUPTCY ORDER:

This is covered by S.20. when the court is satisfied that the facts alleged in the petition are
correct and that the debtor has no substantial defense, it will make a bankruptcy order against
the debtor under S.20.

The official receiver who is a public officer appointed becomes the receiver of the property of
the debtor under S.20[4].

The receiving order stays any legal process against the debtor in respect of matters provable in
the bankruptcy. No creditor can commence an action or any other legal proceedings without
leave of the court as provided by S.27[1][b]

The bankruptcy order does not affect the right of the secured creditor to deal with secured
property as he chooses subject to the right of the trustee or the official receiver inspect and
possibly redeem it as provided for by S.27[2]

The official receiver organizes the advertisement of the bankruptcy order as a guardian of
public interest but it need not be advertised if the debtor is appealing against the making of the
order
In Re a Debtor No [12 of 1970] 1971 1 WKLR p. 1212. A receiving order had been made against
a solicitor and he asked the court have it set aside, not because there was a proper scheme of the
arrangement but merely on personal assurance that all his debts will be paid within a
reasonable time. The court of appeal refused to rescind the order and stated that “normally the
circumstances must be such as to justify the annulment of an adjudication order”

Re teddy Cheeyi 1996 v4 KLR p. 116 in which wavamuno brought a case against him for
writings in muno news paper about him that were untrue several times

In National &GrindlaysBank v sheriff and Anor 1972 EA at 413. The respondent had a
receiving order [now bankruptcy order] made against them with their own consent based on a
petition arising out of unpaid judgment debts . the appellants appealed contending that the
receiving order could only be set aside where the judgment had been satisfied or where it had
been obtained by fraud or in collision or there had been a miscourage of justice, it was held that
only in most exceptional circumstances would the court go behind a judgment onan application
for rescission of a receiving order and that the usual grounds for the rescission of a receiving
order are that The order ought not to have been made or that the date has been discharged the
onus is on the debtor to show that he has discharged the debt

Read:

Kanji PursholtanTogrami v Sydne moss 1957 EA p.408

Shekmuhammed Bashir v income Tax Commissioners 1961 EA 255

In Re wigzell exparte hart 1961 2 qb p.835, the advertisement of a receiving order was
postponed pending an appeal by the debtor who in the min time paid into and drew out of his
account, a month latter the appeal was heard and dismissed and the receiving order was
advertised. Even though the banker was entirely ignorant of the making of the receiving order,
it was held by the court of appeal that the banker was responsible for all sums paid in and could
not take credit for any sums drawn out.

In Re GhelaRamji 1919 2 UGL p.303 the court held that only in exceptional circumstances would
rescission of a receiving order be granted before the public examination of the debtor

KahelmuhammedabdelMagid Nagy Re 2002=20004 uganda commercial law reports at 294

National Grindlays bank ltd v sheriff and Anor supra;

The respondents had receiving orders [now bankruptcy order] made against them with their
own consent on petitions based on bankruptcy notices arising out of unpaid judgments. After
the official receiver had applied for their adjudication, the respondents applied for rescission of
the receiving order. The judge postponed adjudication of the application and the hearing of the
application for rescission and eventually rescinded the orders.

The appellant appealed contending that receiving orders could only be set aside where the
judgment had been satisfied, where it had been obtained by fraud or collusion or their had been
a miscarriage of justice. The respondents argued that the court could go behind a decree that
there was no misconduct by the respondent and that the appellant was the only creditor.

The court of appeal held;

1. the requirement that the court shall and adjudicate is directory and not mandatory and
the court could adjourn the application for adjudication
2. only in the most exceptional circumstances would the court go behind a judgment on an
application for the rescission of a receiving order.
3. The usual grounds for rescission of a receiving order are that the order ought tnot to
have been made or that the date had been discharged
4. As the orders were made with consent, they could not be attacked
5. The onus is on the debtor to show that he has discharged his debt
6. The general power to rescind an order will only be exercised when it is clear that it will
not prejudice creditors generally nor operate against public interest
7. Lack of misconduct is a condition for making a rescission order, it is not a ground for
rescission.
8. The fact of there being only one creditor will only be relevant if he consented to the
rescission order. In the result the appeal was allowed

On the application of the official receiver or a creditor, the court may adjudge the debtor
bankrupt. If the creditor’s meeting passes an ordinary resolution in favor of adjudging him
bankrupt, if it had not been possible to obtain any kind of resolution from the creditors, if it has
not been possible to get a meeting of the creditors, if an arrangement as not been approved by
the court within the time stipulated after the conclusion of the public examination unless
ofcourse the court extends the time.

Notice of order adjudging a debtor bankrupt, stating the name, residential and business address
and description of the bankrupt, and the debt of the order shall be gazette in the prescribed
manner and the date of the ordre shall for purposes of the Act be the date of the adjudication.

7/3/2015

In shekmuhammedbashir v income tax commissioners supra;

The applicant sought leave to appeal to the privy council against he dismissal of his appeal
against the making of a receiving order against him by the supreme court. Within 5 days after
filling the application, the applicant was adjudicated bankrupt and a preliminary point was
taken that the adjudication automatically determined the right of the applicant to proceed with
his application and consequently with his appeal

It was held

That the applicant had a vested right to appeal to the court of appeal against a receiving order
provided the requisite conditions were fulfilled and from the court of appeal to the privy
council as there was nothing in the bankruptcy rules which took away the right upon
adjudication. It was a right to which effect must be given

In National and Grindlays bank v Sheriff and Anor supra

The respondent had a receiving order made against them with their consent on petitions based
on bankruptcy notices arising out of unpaid judgments

It was held That the requirement that the court shall adjudicate is directory and not mandatory
and the court could adjourn the application for the adjudication but the onus is on the debtor to
show that he has discharged the debt.

Only in the most exceptional circumstances would the court go behind a judgment on
application for rescission of a receiving order, lack of misconduct is a rescission for making a
rescission order. It is not a ground for rescission
EFFECT OF BANKRUPTCY ORDER

S.27 provides that upon making of a bankruptcy order, the bankruptcy estate shall vest in the
official receiver and then in the trust without any conveyance, assignment or transfer.

And according to S.27[1][b] except with the trustee’s written consent of with the leave of the
court and in accordance with the terms as the court may impose, no proceeding execution, or
other legal process may be commenced or continued and no distress may be levied against the
bankrupt or the bankruptcy estate

However this does not affect the rights of a secured creditor from enforcing a charge or security
over the property of the bankrupt as provided by S.27[2]

A debtor remains bankrupt until he is discharged or his bankruptcy is annulled. When an

adjudication order is made, the debtor’s property passes to his trust in bankruptcy and until a
trustee is appointed, the official receiver acts as the trustee

The remedies of the creditors against the debtors are extinguished, they may only prove in the
bankruptcy

S.45 provides areas where the debtor is disqualified [read in detail this Section]

S.45[4] provides that the disqualification which the bankrupt is subject shall not apply where
the bankruptcy has been

1. Annulled
2. Where the period of five years has elapse
3. Where the individual obtains a discharge with a certificate that the bankruptcy was
caused by misfortune without misconduct on his part

According to S.188 of the Company’s act an un discharged bankrupt may not be a director or
take part in the management of any company except with the leave of court
An undischarged bankrupt cannot obtain credit without disclosing his status and if he does so
he commits an offence according to S.54[1][a]

in R v Hartly 1972 1 ALLE P. 597 it was held that the crime is an absolute offence and It is not
necessary to prove fraud

However there must be an “obtaining of credit” Thus in R. v Hayat 1976 CR at 508 Hayat was
charged with obtaining credit without disclosing that he was an undischarged bankrupt. He
had a current bank account but there were no overdraft facilities. He was in trade and his
account became overdrawn because a customer stopped some checks. Though Hayat had no
reason to suspect that they will be stopped

It was held that Hayat was not guilty of the offence because there had been no of obtaining
credit. The credit here was not obtained by an active conduct of the accused

It is not an offence of obtaining credit whilst a bankrupt to obtain goods on hire purchase or to
default payment on an installment on hire purchase.

In R v Miller 1977 1 WKLR at 129 It was held that no money is due under a hire purchase
agreement until the date for payment of an installment and on failure to pay an installment far
from giving credit, the lender acquires a right of action, therefore mere default in making
payment does not amount to obtaining credit

Art 80[2] of the constitution, an undischarged bankrupt is disqualified from seeking election as
a member of parliament.

Art 102 of the constitution, a bankrupt is disqualified from being a president.

S.11[a] of the Advocates Act an undischarged bankrupt will not practice law in the court of
Uganda

NB: find the effect of the adjudication order in other legislations e.g. land law, local government
act, NSSF Act Just of the peace Act e.t.c.

Read

Official receiver v United stores ltd 1962 EA at 180

A bankrupt cannot conceal or remove property, if a bankrupt does so, he may face arrest and
imprisonment.

A creditor’s rights are altered, they no longer possess a debt but possess a right to prove a
debtor in the course of the debtor’s bankruptcy.

As a mater of practice the court may require a bankrupt to surrender his passport refer to
S.53[1][a] which states that a bankrupt shall not leave or attempt to leave Uganda without the
permission of the court

ANNULMENT, REVOCATION OF BANKRUPTCY ORDER.

The bankruptcy may be annulled on approval by the court according to S.44 and Rules 57 and
58 of the bankruptcy Rules

If in the opinion of the ocurt it ought not have been made e.g. where an order has been made
against a miner.

The effect of an annulment is that the assets re-vest in the person appointed by court and the
former bankrupt who is also restored to his former position as far as debts and liabilities are
concerned. He may then be sued for outstanding claims. Reefer to S.44[2]

S.44[3] “an order to remove any legal disqualification on account of bankruptcy which may be
removed if the bankrupt obtains from the court a discharge and the certificate to the effect that
bankruptcy was caused by misfortune without any misconduct on his party. The court may if it
thinks fit grant such a certificate and the refusal to grant the certificate can be a subject of
appeal.

The annulment has the effect of terminating the bankruptcy. In fact the position is the same as if
the debtor has never been adjudicated. His property will re-vest in him but any sells or
disposition of property or payments made or any acts done by the official receiver, trust, or any
other person remain varied as provided for by S.44[2][b].
In Re Robertson [a bankrupt] 1989 1 WKLR at 1139 it was held that a bankruptcy order could
not be discharged until the dates had been discharged to the extent required by the Rules. i.e.
until the dates had been proved and paid in full

Any malicious presentation of a bankruptcy petition can lead to its annulment. In Beechey v
William hill [park lane] [1956] the petition was based ona judgment founded on a debt which
was unenforceable at law. A receiving order was made and the bankruptcy proceedings took
their ordinary course until after about 2 years. The bankruptcy was annulled on the basis that
all the debts had been paid in full.

3/20/2015

THE TRUSTEE

A trustee is defined in S.2 to mean a trustee in bankrupt’s estate.

A trustee is appointed by the first meeting at creditors as provided for in S.25.

S.26 provides that the trustees give notice of the bankruptcy and his partners

S.29 spread out the duties of the trustee

S.30 provides for trustees notice to creditors.

S.33 provides for the trustees power to obtain documents.

S.34 provides for the trustees power under certain circumstances to allow a bankrupt to manage
property.

S.36. the official name of the trustee is the trustee of the property of the bankrupt.

S.51 provides for courts supervision of the trustee.

S.52 provides for enforcement of trustees duties.

S.37 provides for the vacation of the office of the trustee

A trustee has wide reaching powers in relation to the adjudication of the bankrupt estate.A
trustees power include the power to:

a. to administer the estate

b. sell any or all of the bankruptcy’s estate
c. carry on business owned by the bankrupt
d. make compromise in respect of any debt of the bankrupt
e. distribute property amongst the creditors
f. institute or defend any legal proceedings on behalf of the bankrupt.
g. Mortgage or charge property in certain cases

The trustee is under a duty not to make a profit for himself and to take only his agreed
remuneration nor must he purchase the estate or part of it. He is obliged to collect the debt and
realize the estate as quickly as he can and make a property distribution of it. He must also have
regard to the wishes and resolution of the creditors.

In Re Alafaci Registrar in bankruptcy v Hardwick [1976] 9 ALLER 262The grave failure by a

trustee to appreciate and perform his duties led to the courts counseling his registration and
ordering that he personally make good the loss sustained by the bankrupt estate.

DUTIES OF THE BANKRUPT TO THE TRUST

1. Attend upon the creditor at all times required by the trust and give all relevant
information to the trust. And attend the first meeting of the creditors and if required by
the trust attend any subsequent meeting and provide the meetings with any information
required
2. Execute all documents and do any acts in relation to their property as required by the
trust
3. Assist to the utmost in the administration of the estate, failure by the bankrupt to
comply with any of these duties may amount to an offense under Ss.53-55 of the Act.
This could result in charges being laid and the possibility of guilty if found guilty of an
offense
DUTIES OF THE TRUST TO THE BANKRUPT.

A trust owes a number of duties to the bankrupt. A trust has a duty to….

a. Notify the bankrupt of the bankruptcy

b. Summon a meeting of creditors
c. File a report regarding the conduct of the bankruptcy
d. Arrange if deemed necessary a public examination of the bankrupt
e. Employ qualified persons to assist if required.
f. The affairs of the trust are subject to audit under S.52

CREDITORS’ CLAIMS

[for both bankruptcy and corporate insolvencies]

Upon bankruptcy, a creditor’s right of choice or a right to enforce any judgment already
obtained is converted into a right to prove in the administration of the debtor’s bankrupt estate.
Most debts owed by the bankrupt may be proved in his bankruptcy, subject to exception all
debts and liabilities present or future, certain or contingent which the bankrupt was subject at
the debt of the bankruptcy or to which he may become subject before he is discharged by reason
of any obligation incurred before the debt of the bankruptcy by reason of an obligation incurred
before the date of the bankruptcy approvable in bankruptcy.

Read S.6: ascertaining amount of claim and interest,

The trustee must estimate the value of any contingent liability, but if the creditor disagreed with
his estimate, the creditor has a right to appeal to the court under S.8[2]

A creditor can not prove for a debt or liability contracted by the debtor after notice of any act of
bankruptcy has been received by the creditor or contracted after a receiving order has been
made

The notion of “proof” of a debt in bankruptcy is a technical one involving for the creditor a two
fold task

First he must establish that the debtor is truly and justly indebted to him and
He must show what is the nature and character of that liability

The trustee has power to go behind any apparent final judgment in favor of the creditor and to
reject proof where he discovers

Saudi’s against the silver 1950 17 EACA at 95

In official receiver against chande and Ors 1960 EA at 581

A receiving order was made against the partner of trading firm later the respondent filed proof
of the debt with the principle sum with interest and cost due under 7 decrees against the
bankrupt firm, 6 of these decrees were dated 21st March 1959 and the 7th was dated 24th March
1959 and all were in respect of promisory notes signed by or on behalf of the bankrupt firm. All
these action had be instituted before the receiving order but the judgments and decrees were
obtained after the receiving order

The official receiver rejected the respondents proof to the extent of the costs of each suit and
interest. An application by the respondent to vary the rejection of their proof was successful
except for a small sum paid to obtained satisfied copies of the decrees. It was held that the
respondent were entitled to prove for the costs since the debts in respect of which were incurred
themselves provable and costs were part and partial thereto. And interest and court rate is only
provable to the date of the receiving order

In vabilalchhabhaifoni against official receiver 1946 7 EA at 34

A creditor who’s proof was rejected by the official receiver because the entries in the debtor’s
books supporting the claim were inadequate was held entitled to cross examine the debtor
about the debt.

Mutual credit or set off

This is covered by S.9 it deals with the difficult problems which arises when a person who is or
was owed money by a bankrupt was or is himself indebted to the bankrupt. The person who
has become a bankrupt and a person claiming to prove a debt in the bankruptcy an account
shall be taken of what is due from one party to the other in respect of those mutual dealings.
The sum due from one party shall be set-off against any sum due from the other party and the
only the balance of the accountmay be claimed in the bankruptcyro is payable to the trustee in
bankruptcy.

A set-off is a legal right according to which a debtor will take into account of a debt owing to
him by the creditor when he is required to settle the debt

Without a set off the purchaser have had to pay the full amount of the purchase money proving
in bankruptcy for the amount of the tax cost and receiving presumably payment of only part of
them

What are mutual dealings?

Harisowen west work ltd v west minister bank ltd 1970 3 ALER at 473

The company opened No. 2 account with the bank at a time when its No. 1 account was over
drawn by pound 11879. It as agreed between the company and the bank that there should be no
dealings on the No.1 account for four months, latter the company paid a check for 8000 pounds
into the No.2 account. This check was cleared and credited. In the meantime the company had
gone into liquidation and the bank sought to set-off the money in No. 2 account against th e
over draft in No. 1 account and prove in liquidation for the balance. The liquidator claimed that
the two accounts did not represent mutual dealings and could not be set=off and could not be
set-off. He claimed the 8000 pounds claiming that the bank should claim the pound 118799 in
liquidation. It was held

That the agreements of the parties did not operate the tow accounts at the same time indicating
that they were not mutual, but must be considered as separate contractual arrangement thus
there could be no set-off and the liquidator’s claim succeeded.

In Re DG CURTIS [builders ltd] 1978 Ch at 162;

It was held that the crown [the state] was entitled to set off against moneys which it owed a
company in liquidation, statutory debts owed by the company in respect of corporation tax and
national insurance contribution

Further more it was held in Re Cushla 1979 3 ALER at 415

That when proving in bankruptcy when crown department could set off against the debt owed
by the bankrupt to the other departments thus the commissioners of customs and exercise if
they owed the debtor repayment in respect of vat could set off against that money which he
owed to the in land revenue. However the creditor cannot claim the benefit of the set=off
against the debtor’s property in respect of the debt incurred after notice of an available act of
bankruptcy.

S.9[2] provides that a person shall not be entitled under the Section to claim the benefit of any
set=off, the property of a debtor in any case where the person is reasonably expected to have
foreseen that the debtor would be likely to be unable to pay his debt at the time of giving credit
to the debtor.

Claims by unsecured creditors;

This is covered by S.10 the creditor or trustee may required unsecured creditor to make a dated
claim informally in writing. Then the claimant shall submit a claim verified by a statutory
declaration setting out in full the particulars of the claim supported by relevant documents e.g.
invoice, check or delivery note. The liquidator/trustee may require the claimant for the
production of supporting documents. The liquidator or trustee may admit or reject any claim in
all or in part and if the liquidator or trustee subsequently considers that a claim was wrongly
admitted or rejected in all or in parthe may revoke or amend the decision

Claims of secured creditor;

S.2 defines a secured creditor to mean a creditor who holds in respect of a debt or obligation a
charge over property

10/4/2010

Read S.11 in detail

Secured creditors are those who hold a mortgage, a charge or lien, upon any property of the
debtor. A secured creditor must take in his proof that he is a secured creditor and if he fails to
do so he can be required by the trust to surrender his security for the benefit of the creditor
generally so that then he proves as unsecured creditor.
The rights of a secured creditor in insolvency Act

1. He may sell his security and not prove in insolvency at all

2. He may sell the security and prove for the balance If any and he may deduct the cost of
realization from the amount he receives from the sell of the security

In Re a Debtor [No 5 of 1967] Ex Parte national westminister banker against official receiver
1971 2 All Er p.938

Held

That if property owned by A and B is charged to secure a debt then if A only goes bankrupt and
the secured creditor sells the property he must return the balance to the trust and B can prove in
A’s bankruptcy

3. The secured creditor may surrender his security and prove for the whole debt in the
same way as the unsecured creditor would do. This option would be chosen where the
security is insufficient to pay out the secured debt and proving in bankruptcy would
enable a larger sum to be recovered
4. The creditor may estimate the value of the security held if he it has not been realized and
prove for the balance after deducting the value
5. If the secured creditor adopts this course the trust has the following powers;
a. In Re A Debtor [No 24 of 1971] ex parte marley V Trust of the property of the Debtor
1976 2 All Er p.1010

It was held that where the security is realized by the creditor and the creditor wishes to prove
against the bankruptcy estate he must [in cases where the interests are equal regard half of the
debt as secured and may only prove for half the balance

In Re Avelinbarford Ltd 1989 1 WKLR 360

Held

That the right of a secured creditor to the security is not affected in liquidation

In Roman holding co ltd 1991 a wklr at 10

Held
That a secured creditor may surrender the security and prove as unsecured creditor for the
whole debts

PREFERENTIAL CREDITORS s.12

PREFERENTIAL debts to be paid In priority to other debts. If the assets are insufficient to meet
them they will have priority over the clams of secured creditors

They are a follows

a. Remuneration and expenses of the trustee/liquidator

b. Professional indemnity and any remuneration and expenses of any receiver, liquidator,
provisional administrator or proposed supervisor
c. Reasonable costs of any person who petition court for bankruptcy or liquidation order
d. Wages or salary of workers for four months.
e. Any compensation or liability under the worker’s compensation accrued before the
commencement of insolvency not exceeding the prescribed amount.
f. And All preferred debts under S.33 and 105

Tax withheld are not paid over to URA for 12 months prior to the commencement of insolvency

Contributions payable to NSSF

It should be noted that the S.109 of the income tax taxation gives the commissioner general
discretion to determine the tax to be paid out of the assets of the company.

A receiver or liquidator is made personally liable if he fails to comply with income tax Act and
other laws.

The receiver is not supposed to part with any assets in Uganda that is held by him in his
capacity ass a receiver without prior written permission of the commissioner general.

NON PREFERENTIAL DEBTS.

These are debts which are not preferential or deferred e.g. those due to trade creditors. They are
paid after the preferential debts and rank paripassu

S.13 provides that after paying debts under S.12 then non preferential debts are paid. All non
preferential debts rank equally among themselves and shall be paid in full unless the assets are
insufficient to meet them. In which case they are abate in equal proportion

Non preferential debts are affected by prior agreement between parties according to S.13[3].

the principle of equal distribution

the most fundamental principle of insolvency law is that of equal distribution of general debts.
All creditors participating in common pool in proportion to the size of their admitted claims. It
is this principle of ratable distribution which marks off the rights of creditors in a winding up
from their pre liquidation entitlements.

Prior to winding up or bankruptcy each creditor is free to persue any enforcement measure
open to him. The rule here, in the absence of insolvency proceedings is that the race goes to the
swiftest the creditor initiating the earliest execution has the first priority and whatever is
available if for the most in line.

Insolvency put an end to the race. The principle of first come first serve gives way to that of
orderly realization of assets by the trustee/liquidator for the benefit of all unsecured creditors
and the distribution of net proceeds in equal proportions

The principle is in general confined to assets of the debtor and does not affect secured creditors.

Exceptions to equal distribution principles;

According to S.13[3] the principle of equal distribution of assets does not apply to the rights of
secured creditor’s suppliers of goods however there are a number of true exceptions

1. Rights of set off S.9. a set off is a legal right according to which a debtor will take into
account a debt owing to him by the creditor when he is required to settle the debt.
 Where before the company goes into liquidation there had been mutual credits, mutual
debts or other mutual dealings between the company and the creditor of the company
providing or claiming to prove in the debetion, an account is to be taken of what is due
from each party to the other in respect of the mutual dealings and the sum due from one
party are to be setoff against eh other only the balance being provable in liquidation or
paid to the liquidator

In MS fashiona ltd V bank of credito and commerce international SA No 2 1993 3 All Er 769

The bank advanced money to a company and the director who had a deposit account witht eh
bank as between himself and the bank the director was expressed to be the principle debtor. It
was held

That the company director as the principle debtor could rely on the right of set=off to reduce or
extinguish the debt owed to the bank by him and this company by the amount standing to his
credit in his own deposit account with the bank

Re bank of Credit and commerce international SA [No8] 1997 4 All Er 568

The hous of Lords held that a set off was limited to mutual claims existing at the debt of a
winding up order and claims by third parties even with their consent, because to do so by
agreement wold be to subvert the fundamental principle of paripassu distribution of an
insolvent company’s assets

In Re Noman holding company ltd 1990 3 All Er 757

The court emphasized that the provisions relating to set=off are mandatory and cannot be
waived by the company or any other party concerned even by express contractual agreement

Post insolvency creditors;

The liquidator of a company cannot simply procure an instantaneous sensetion of activity. He

may need to continue trading so far as may be necessary for the benefitial winding of the
company and in any event it may be necessary for a limited period to retain some staff,
procuere the continuence of supply of goods and service and enter into a new contracts. See
S.48

Payment of pre insolvency debts is to preserve assets or avoid other loss e.g. payment to avoid a
forfeiture of a lease distress, public utilities, water and electricity.

Debt subordination agreement

Subordiantion agreement can affect in equal distribution principle in

Re british and common wealth holdings Plc [No 3] 1992 1 WKLR 672

Held

That creditors who’s debts were subordinated by a trust mechanism were not entitled to vote on
the proposed scheme of arrangement because they had no interest in the assets of the company.
Those assets were availale for distribution to creditors who’s claims were seneor to the claims of
subordinated agreement.

In Re Maxwell communication corporation Plc No2 1993 1 WKLR 1402

A purely contractual subordination arrangement was considered in a similar contest. The court
held that such a subordination agreement are effective. Accordingly creditors who have agreed
to surbodinate their claims to the claims of other more senior creditors are not entitled to be
paid until the seneor creditors have been paid

S.14 deals with surplus assets, after payment under S.12 and 13 if there is any surplus it shall be
given to the bankrupt. In the case of a company the surplus shall be distributed in accordance
with the memorandum and articles of association. See Ss.48 and 49

PROPERTY AVAILABLE FOR PAYMENT OF DEBTOR’S DEBTS.

Property is defined in S.2. it is not correct to say that the entire debtor’s property is available to
creditors because the act exempts certain assets. It is not also correct to say that the property
available is limited to that owned by the bankrupt at the debt of bankruptcy. Since the Act
enables the trustee to recover property disposed of by the bankrupt in certain circumstances
before the date. Thererforethe property available to pay the debts of the bankrupt is as follows

a. That owned by the bankrupt when his bankruptcy commence

b. That acquired by him between the commencement of the bankruptcy and his discharge
c. Goods of which the bankrupt was oener at the commencement of the bankruptcy
d. Invalid assignments or transactions.

S.31 shows the property available to the bankrupt vested int eh trustee and is devisable among
creditors. Moreover if a bankrupt having acquired property after the date of tbe bankruptcy
should dispose of it to any person who deals with him in good faith and for value that
disposition if completed before intervention of the trustee is valeid and that person aquires a
good title to the property which title is not therefore available to the creditors. This is referred to
as “after acquired property”

An illustration of after acquired property is afforded by cases in which after the commencement
of the bankruptcy, some one dies leaving a Will under which the bankrupt is a beneficiary

In Commissioner of Stamp duties V LivingStone 1965 App cas 694

Held

That until the property is transmitted by the executor of the Will, the bankrupt has no legal or
equitable proprietary interest, but at the moment of death, the bankrupt acquires a right to have
the deceased’s estate administered in accordance with the Will and this right vests in the trustee
in bankruptcy immediately on coming into existence upon the deceased’s death. The trustee
thus have the right or transfer for himself in due course of the property in question for the
benefit of the creditors

The Rule in Cohen V Mitchel 1890 25 Qb 262

Includes the possibility that the trustee’s claim to the bankrupt after acquiring property may be
defeated under certain conditions these are;

The bankrupt must dispose of the property to a person dealing with him in good fainth and for
value without notice of the bankruptcy
Official receiver v Liverpool Uganda co ltd 1942 9 EACA 19 read

CC partel and Co ltd v ND Partel 1967 EA 458

KMM was a registered owner of certan land subject to three registered charges. In 1957 KMM
entered into a written agreement for the sale of the land to the third chargee

The agreement provided that the third charge would pay off the first and second charges but
the first and second Chargees were ot parties to the agreement. The agreement stated that the
amount due on the third charge was satisfied by the third charge releasing KMM from liability.
The third chargee went into consention but ever paid off the first and second charges and the
agreement was never registered against the title. In april 1949 the plaintiff co obtained a
prohibitory order attaching “all the right, title and interest of the third chargee in the land” on
third June 1959 a receiving order was made against the third Chargee and he was adjudicated
bankrupt on 16 Oct 1959. On 20 second Oct 1959 the land was sold on the instruction of the first
and second charges and realized a surplus over the amount required to satisfy those charges,
but not over rthe amount due under the third charge at the date of agreement for the sell.

The third Charge was registered and discharged from bankruptcy in 1960. The official receiver
claimed the surplus as the trustee of the third Chargees estate and so also the plaintiff company
under its attachment, buy agreement the parties sought the opinion of the court on questions of
law.

The official receiver argued firstly tha the agreement for the sell conferred no rights of title to
property but that he did release the land from the third charge, so that the third chargee was
only left with a right to compel a transfer of the property which right was not one which could
be attached under a prohibitory order

And secondly that the charge had been notionally paid off and had seased to exist so that
nothing was due under it.

Court held

1. The effect of the agreement for the sell as regards the third chargee was merely to give
KMM a personal release which did not operate to clear the title or to release the title of
the land from the encumbrance. Therefor the charge still existed
 2. Therefore the third chargee had a right and title in unto the land as an encumbrancer
which right and title was immovable property capable of attachment and which was
attached before the receiving order was made
3. Therefore the plaintiff as attaching creditor had a varied claim to the surplus on the sell
but the official receiver did not

In re Jan MuhammedLadha [the debtor]and an application by Je Walgi 1961 EA 175

The applicant a decree holder with another decree holder obtained orders for the attachment of
the debtor’s goods after which the wife of the debtor filed a suit claiming a declaration that the
attached goods were her property, subsequently by agreement between the decree holders and
the attorney for the debtor, the attachment were raised on terms that goods were to be
transferred to a third party who in consideration thereof executed a bond where by he bound
himself in the sum of 5000sh the estimated value of the goods to apy the said sum into court if
the wife suit failed. Later a receiving order was made against the debtor and the official receiver
was appointed trustee of the debtor’s estate in bankruptcy. The wife having then withdrawn her
suit both the official receiver and the applicant claimed the 5000sh

Held

1. The goods had been sold to a third party bona fide and for value and when the debtor
was adjoudged bankrupt the goods did form part of his estate accordingly the official
receiver had no interest in the goods or in the money representing the goods
2. The sum of 5000sh should be applied first in satisfaction of the charges of the broker
who attached the debtor’s goods and subject their to between the decree holders
proportionately if need be. Application was allowed.

Property available for payment of a debtors debt.

Effect of the RTA

Under S.197 and 198 of the registration of title’s act the official receiver and trustee in
bankruptcy upon their appointment may be registered as proprietor of the land who’s owner
has been adjourged bankrupt or in respect of whom a bankruptcy order has been made
Equitable interest

S.264 allows for application of equity where the bature of the bankrupt interest in any property
is merely an equitable one, that interest forms part of the estate passing to the trustee. Where the
interest carries a right to claim some payment or to seek specific performance of a contract for
the conveyance of legal title to property it may in due course yield considerable value for the
creditor;s benefit.

Intangible property:

In Re Keen 1922 2 CH 475

Held

That the notion property includes intangible as well as tangible assets and hence the good will
of a bankruptcy business together with the title, any secret fomulars, patents, trade marks,
copyright or other industrial or intellectual property including entitlement to loyalties and
lecense fees passes to the trustee in bankruptcy and may be disposed of for value\

Chose in action:

Chose in action used to denote a personal right to claim property [including payment of
money] as opposed to actual corporal property itself. Chanel j in Torkington v Magee 1902 2 KB
427 and 43- defined a chose in action as follows;

Chose in action is a known legal expression used to describe all personal rights of property
which can only be claimed or enforced by action and not by taking physical possession. It thus
includes proprietory rights as debts, negotiable instruments, shares, policies of insurance, bills
of lading, legacies under a Will and rights of action resulting from a tort or breach of contract as
well as intangibles as patents, copyrihgts and interests under a trustee.
The trustee is empowered to take whatever steps inecessary to realize the value represented by
any chose in action which has vested in him as a consequence of the bankruptcy adjudication .

Insurance:

There is a special rule to any contract of insurance which a bankrupt may have effected
covering his portential liabilities to third parties. If any such liability is incurred by the insured
either before or after he became bankrupt or makes a composition or arrangement with his
creditors his rights against he insurer do not vest in the trustee but are transferred to and vest
in the third party to whom liability has been incurred.

PROPERTY NOT AVAILABLE FOR PAYMENT OF BANKRUPTCY DEBTS

This is concurred by S.31[2]. The general rule is that upon bankruptcy, the entirety of the
debtors’ property vests in his trustee, admits of a certain number of exceptions. Some of these
exceptions arise by virtue of specific statutory provisions other are creatures of case law while
other again are dependant upon the specific arrangement being made by the debtor of some
other person. Therefore a consideration of property available to the bankrupt creditors by a
consideration of what assets are exempt. S.31[2] provides for property not divisable among
creditors of the bankrupt and S.31[2][d] provides tha the court must prescribe the value of other
property not to be attached

Exempt items

1. Family assets. In divesting the bankrupt of his property for the benefit of his crediotrs,
the law refrain from striping him and his family of the last vested of his dignity and
confort as represented by their personal clothing, essential domestic furniture and
equipment and tools which the bankrupt uses to earn his living and thus supports
himself and his family
2. Bankruptcy’s home/matrimonial home.S.31[3] describes what amounts to a matrimonial
home. The most valuable assets belonging to a bankrupt is the home which he occupies.
The issue of policy and principle associated with the treatment of matrimonial home in
 the case of bankruptcy of either spouse have given rise to protracted controverse since
they involve attempts to reconcile to mutually exclusive interests. On one side is the
claim of the unpaid creditors to recoop some of their losesfromt eh principle available
assets. Set against this is the general concern that the hardship and indignity of
homeless should not be imposed upon persons who are in the domain innocent victims
of the bankruptcy’s financial failures;

Two alternative situation need to be considered namely

Where the bankrupt is the sole owner of the matrimonial home although their may be rights of
occupying house and where the bankrupt and his orher present or former spouse are joint
owners of the home. In the united kingdom the former case prior to 1986 had vested in the king
the position of allowing a deserted wife’s right of occupation to prevail over the rights of the
husband’s trust to sell the property. In the latter case it was settled before 1986 that execution of
the trust for sell resulting from joint ownership of the matrimonial home could be ordered by
the court in response oto application by the trust. The courts have a discretion whether to order
the sell of the property where a spouse nad children are in occupation. However the majority of
reported cases indicate a tendence to regard the interest of the creditors as prevailing over those
of the spouse and children in all but most exceptional circumstances.

Read

Re holiday 1981 1 Ch 405

Re lowre 1981 1 ALL er 353

Re Pavlou 1993 3 all Er 955

It should be noted that the matrimonial home of the insolvent was ot exempt under S.41[1] of
the bankruptcy Act. The provisions do not surficientlyy provided for the lively hood and
survival of the bankrupt and his family .thesesectons pronounce retribution more than
rehabilitation of the insolvent and persons more likely to suffer as a result of this are memebrs
of the insolvent family more than the insolvent. When husband and wife own a matrimonial
home jointly and one of them becomes bankrupt, the question and the right of the trust in
bankruptcy to have the house soldint
In re tanner 1975 1 all er 5

Where the husband was made bankrupt and the house was jointly owned with the wife, it was
held that although the mater was one for the discretion of the court in this case the trustee’s
claim under statue was grater than that of the wife and an order to sell the house but suspended
for a period of two month so that the wife could find a solution which could avoid the need for
a sell

However acquisition of proprietary interest by a spouse for example in a matrimonial home

where she funish less than full consideration and so has been benefited by the other spouse hwo
latter becomes bankrupt have been attached by the latter’s trust In bankruptcy.

In Re windle 1975 2 all er 987

It was held that although the expression purchaser for valuable consideration did not import a
purchaser in the strict sense of a contract of purchase under sell, it does postulate a
personwhom in a commercial sense provided quid proquo

3. Bankruptcy income. Although in principle any money which constitute a bankruptcy

income is claimable as after acquired property as and when it is paid to him it is never
the less the policy of the law of bankruptcy to encourage the bankrupt to continue to
maintain himself and his family both as aspects of the desire to preserve a dignity and
self respect of the bankrupt and his dependents, a rule has therefor ebeen adopted
where by the bankrupt is allowed to retain a proportion of his income to the extent
deemed necessary to maintain him and his family in reasonable circumstances.

The modern approach in Uganda today and else well is to protect he family unit and its
home. It is a constitutional right for the children to have shelter. Also under S.39 of the Land
Act which provides for the spouse’s consent for the sell of property tends to protect the
bankruptcy’s home

4. Property hled in trust. In Re keford ltd 1975 1 all er held that property held by the
bankrupt in trust for another is not available to the trust.
In Barclays bank ltd v quess cross ltd 1965. Held that if money is lent ot a company for a specific
purpose which is frustrated by the advent of winding up there is a resulting trust in favor of the
lender

The rule in ex parte waring. Under this ruel the English courts have disclaimed that specific
assets may count impresses of a trust, this is where for example the holder of a dishonoured bill
of exchange of which the drawer and the acceptor are insolvent is able to establish that by virtue
of a contract between the drawer and holder of particular property or security has been
specifically appropriated by the acceptor to meet the bill on macurity. In such circumstances
unde the decision in exparteWaring 1815 34 all er 546 a holder of the bill is entitled to his claim
directly out of the specified property or security and he is not confined merely to the remedy of
lodging proof in bankruptcy of the two parties who are liable of the bill

17/4/2015

Effect of a bankruptcy order:

According to S.25, upon the making of a bankruptcy order the estate of the bankrupt first vests
in the official receiver and then in the trustee. Without the written consent of the trustee or leave
of court no any legal process may be commenced against the bankruptcy’s estate, however this
does not affect eh rights of the secured creditors to enforce a charge over the property of
bankrupt if they comply with S.11. it is the duty of the trust to collect, realize and
advantageously distribute the bankruptcy estate as reasonably as possible under S.29. the
trustee can take custody and control of the bankrupt estatenot withstanding anything that may
have taken place under any other law. Register in his names the land and other assets of the
bankruptcy estate. He is under a duty to keep the bankruptcy money separate from those under
his control, he has to keep proper books of accounts and records for at least 6 years after the
bankruptcy ends and permit a commit of inspection appointed under S.47 to inspect the
accounts and records unless the trustee deems it prejudicial to the bankruptcy. The court can
order that any creditor inspects the books and records. The trustee performs any other functions
specified under the Act

S.32 deals with property acquired after the commencement of bankruptcy and S.33 deals with
the powers of the trustee to obtain document. He may disclaim or onerous Property as
provided under S.35[1] which brings to an end interest and liabilities of the bankrupt but does
not affect the rights and liabilities of other persons. Onerous property is defined in S.35[3] to
include unprofitable contracts and property not capable of being easily sold or being sold at all.
Once those contracts are are regarded as onerous it means they do not vest in the trustee.

Under S.35[4] after the disclaimer any person may ask the court to make an order vesting the
property in him and any person injured by the disclaimer can apply to court to assess the
damages suffered and proof for this in bankruptcy. The court on its part will award damages
that are just and equitable.

Reservation of title clause

When goods are sold on credit the seller assumes the role of the creditor and the price is paid.
Reservation of title clause puts the unpaid seller in the position to recover the goods themselves
so longer as they remain in possession of the bankrupt and are physically identifiable and
capable of severs. When the goods cannot be easily identified, this can defeat the right s of the
seller. Reservation of title clause can also extend to sub sales in which case the seller will
maintain control over the goods sold to third parties.

Similarly goods sold on hire purchase and the buyer fails to pay or is adjudged bankrupt the
seller is entitled to take back the goods and the trustee has no claim over it. See Re Hooley 1899
2 qb 579

Voidable transactions

Read S.31[1][b] 15 17 18 and 19

The following transactions are void against eh trustee under S.15

Under S.15 where the transfer is made

1. On account of an antecedent debt in other words where consideration is past

consideration.
2. When the transfer was made at the time where the individual was unable to pay his
debts as they fell due.
 3. Within a year preceding the commencement of bankruptcy
4. Enable the person to receive more towards the satisfaction of the debt than he would
have received in bankruptcy

The section supra does not apply if the debt was incurred in the ordinary course of business and
was made not later than 45 working days after the debt was incurred.

Under S.15[2] a transfer made within 16 months preceding the bankruptcy is presumed to have
been made when

a. The individual was unable to pay his due debts

b. On account of a debt not incurred in ordinary course of business

SECTIONS 16:

S.16 deals with transactions at under value ie. Inadequacy of consideration is taken into
account. To be voidable it requires;

1. to have been entered into within one year preceding the commencement of bankruptcy
2. The consideration is less significant.
3. When the transaction was entered into the individual was
a. Unable to pay his individual due debts.
b. Was engaged or about to engage in transactions for which his financial resources were
unreasonably small
c. Incurred obligation knowing that he will not be able to perform the obligation when
required to do so
d. The individual became unable to pay his debts as a result of the transaction or
e. The transaction was entered into to put the assets beyond the reach of the creditors.

a transaction is defined in S.2 to include; a gift, a settlement, agreement/contract or

arrangement

SECTION 17

Section 17 deals with voidable charges. The section requires an application by the trustee to
avoid a charge over the individual’s property.
When the charge has been given within the year preceding the commencement of bankruptcy
on the account of antecedent debt i.e. a charge is given on the basis of past consideration.

There are two exception to this Rule;

1. The charge should secure the price of property sold or supplied to the individual or any
other valuable consideration given by the person making the charge prior to execution
of security..
2. The charge is in substitution for a charge given more than one year preceding the
commencement of bankruptcy

S.17[2] provides that unless the contrary is proved an individual giving a charge within 6
months preceeding the commencement of bankruptcy is presumed to have been unable to pay
debts immediately after giving the charge

Section 18.

This section deals with insider dealings. It requires a transaction entered into within 12 months
preceding insolvency to be voidable on an application of the trustee if it involves;

a. A family member or any other person with closed proximity to the bankrupt
b. Employees, officer, professionals, or other service providers to the bankrupt
c. Business associates e.g. partners, directors, share holders or other similar persons.

Proof is needed according to S.18[2] to protect such a transaction if not it shall be a preference
aimed at aiding the bankrupt to put his assets beyond the reach of his creditors.

Section 19

It provides for the procedure for setting aside voidable transaction under Ss.15 =18. The trustee
has to file in court a notice to avoid, specifying thetransaction to be set aside and the property or
value which the trustee wishes to recover. He also serves a copy of the notice to the person with
whom thetransactionwas entered in to and every other person from the trustee wishes to
recover
Under S.19[2] the person who is affected by the notice and who considers the transaction not
voidable, may apply to court that the transaction should not be set aside. The court can make
any order listed in S.19[5].

S.19[6] provides exception in not setting aside the transaction, shall not affect the title or interest
of a person in property which that person has acquired from a person other than the bankrupt.

S.19[7] provides some limitation to recovery of any property in cases where the property was
acquired in good faith and the acquirer has altered his position. The order could also be denied
if in the opinion of the court it would be inequitable to order recovery.

S.19[8] expands considerably the definition of transaction to include execution, under judicial
proceeding and payment made in pursuance of a judgment or order of the court in respect of a
transaction which section 15 to 18 apply

DISCHARGE FROM BANKRUPTCY

Under S.20[5] bankruptcy commences on the date on which the bankruptcy order is made and
continues until discharged under S.42. Section 42 provides that the bankrupt may be discharged
at any time when he applies to court to be discharged after considering:

a. Official receiver’s report on the bankruptcy.

b. The conduct of the bankrupt during bankruptcy proceedings.
c. Any other matters that the court may consider partinent, the court may discharge the
bankrupt

The court may make it a condition of his discharge that he consents to a decree being entered
against him in favor of the official receiver or trustee or

a. Balance or part of the balance proved in bankruptcy and not satisfied before the
discharge
b. The balance or part thereof of the debts.
These can be paid out of future earning or after acquired property with leave of court that such
income or property is available for payment of the debts. The court may subject discharge
tosuch terms and conditions as the court considers proper

S.43[1] provides that subject to certain limitations a discharge order release the bankrupt from
all bankruptcy debts.

The limitations are contained in S.43[2] and are to the effect that a discharge does not affect:

1. The functions of the trustee which remain to be carried out and the operation of the Act
for carrying out these functions
2. The right of any creditor to claim in bankruptcy for any debt from which he is released
3. The right of a secured creditor to enforce his security for the payment of a debt from
which the bankrupt is released

Under S.43[3] a discharge order doe s not release the bankrupt from a debt secured by fraud or
fraudulent breach of trustee or any liability for a fine imposed for an offence or any debts
prescribed by court when making the order

S.45 stresses the disqualification the bankrupt is subjected to but adds that these will not apply
where:

a. The bankruptcy is annulled

b. A period of five years elapses from the debt of the discharge
c. The individual obtains a certificate from the court that the bankruptcy was caused by
misfortune without misconduct on his part and a refusal to grant the certificate is a
subject of an appeal

S.50 provides for a second bankruptcy, where a second or subsequent order is made against a
discharged bankrupt or an order is made for the administration of the estate of the deceased’s
bankrupt or their property of the bankruptcy’s estate shall vest in the trustee in subsequent
bankruptcy or administration in bankruptcy

Itshould be noted that the law on individual insolvency also applies to partnerships.Read
bankruptcy offences S.53 to 55 and sections 47 48 and 49

Please read odomosu v A’Can continental bank 1976 [1] ALR comm 53
African continental bank v babagomi and another [1970] [1] ALR comm 326