Termination of Bankruptcy: Riara Law School

TERMINATION OF BANKRUPTCY
RIARA LAW SCHOOL

Discharge from bankruptcy
• Three years from the date the bankrupt lodged the statement of
financial position under section 50 he/she will be automatically
discharged from bankruptcy, although by virtue of section 258, an
application can be made for an earlier discharge.
• The automatic discharge has the same effect as a court order
authorizing the bankrupt’s discharge.
• However, a bankrupt is not discharged automatically if:
i. The bankruptcy trustee or a creditor has objected
ii. The bankrupt has to be publicly examined, and the public
examination has not been completed.
iii. The bankrupt has not been discharged from an earlier
bankruptcy.
• Section 259 provides that in the above cases the bankrupt will be
subjected to a public examination.
Report by the Bankruptcy Trustee
• When the bankrupt has applied for discharge, or where he is to be

subjected to a public examination the bankruptcy trustee will be
required to prepare a report and lodge it with the court. The
report should contain the following:
i. the bankrupt’s affairs;
ii. the causes of the bankruptcy;
iii.the bankrupt’s performance of his responsibilities under this Act;
iv.the manner in which, and the extent to which, the bankrupt has
complied with orders of the Court;
v. the bankrupt’s conduct before and after the commencement of the
bankruptcy; and
vi.any other matter that is likely to assist the Court in making a
decision as to whether or not to discharge the bankrupt.
Discharge from bankruptcy
• On hearing the application for the discharge the court may make any
of the following orders:
i. immediately discharge the bankrupt;
ii. discharge the bankrupt on conditions;
iii.discharge the bankrupt but suspend the order for a specified period;
iv.discharge the bankrupt, with or without conditions, at a specified
future date,
v. may refuse to make an order of discharge, in which case the Court may
specify the earliest date when the bankrupt may reapply for discharge.
vi.The court has the power to restrict the bankrupt from engaging in
business after the discharge without the court’s approval. A court is
free to quash the order of discharge within two years if unknown facts
come to light.
• If property acquired by the bankrupt after discharge is owned by
the bankrupt at the date when the order quashing the discharge is
made, the property vests in the bankruptcy trustee who shall
apply any such property in paying the debts that the bankrupt has
incurred since the date of discharge.
• If the bankrupt can prove that the conditions attached to the
discharge are too onerous the court may nevertheless proceed to
give an absolute discharge. This is so where the bankrupt’s
inability to comply with the conditions is due to circumstances for
which the bankrupt should not reasonably be held responsible.
• Section 267(1) provides that On being discharged, a bankrupt is
released from all debts provable in the bankruptcy except those
listed in subsection (2).
Debts which survive the discharge
• As provided for under section 267(2) upon discharge the bankrupt still
remains liable for the following debts:
i. any debt or liability incurred by fraud or fraudulent breach of trust to which
the bankrupt was a party;
ii. any debt or liability for which the bankrupt has obtained forbearance
through fraud to which the bankrupt was a party;
iii.any judgment debt or amount payable under any order for which the
bankrupt is liable under section 150 or 262;
iv.amounts payable under a Court order made under the Matrimonial Causes
Act;
v. amounts payable under the Children Act.
• Note that the discharge of a bankrupt does not release a person who, at the
commencement of the bankruptcy, was a business partner of the bankrupt; a
co-trustee with the bankrupt; jointly bound or had made any contract with
the bankrupt; or a guarantor or in the nature of a guarantor of the bankrupt.
Annulment of bankruptcy orders
• Either the Court or the Official Receiver can make an order
annulling the bankruptcy. This can be done in the following
situations as provided for under section 272 and section 273 of the
Act:
i. The bankrupt should not have been adjudicated bankrupt.
ii. The bankrupt has fully paid or satisfied all his debts and the
Official Receiver's fees and costs.
iii.There has been a substantial change in the bankrupt’s financial
circumstances since the date of adjudication and he can now pay
his debts.
iv.The court has approved a composition.
• On the annulment of a bankruptcy order the property of the
bankrupt will revert to the bankrupt without the need for a
transfer.
Bankruptcy offenses
• While bankruptcy itself is not a crime, once a bankruptcy order is made the
bankrupt is liable to prosecution if he commits any of the offenses
mentioned in the act.
• Even if the bankruptcy order is annulled criminal proceedings once begun
can be continued but new proceedings cannot be brought. Likewise, after
discharge proceedings cannot be commenced but proceedings already
began can be continued in relation to offenses committed prior to the
discharge.
• Only the director of public prosecutions has the power to bring criminal
proceedings. The trustee’s duty is to report to the official receiver any
matters which should be included in the report prepared and submitted to
the court. Presumably, when the court believes that the bankrupt’s conduct
discloses commission of an offense they will direct the appropriate
authorities to take necessary action.
Bankruptcy Offenses
• A bankrupt commits an offence if the bankrupt did not, when contracting a

debt, have the capacity to pay the debt when it fell due for payment, as well
as to pay all the bankrupt’s other debts.
• A bankrupt commits an offence if the bankrupt has materially contributed
to, or increased the extent of, the insolvency by:
a) by gambling;
b) by engaging in rash and hazardous speculation;
c) by unjustifiable spending; or
d) by living extravagantly
• Section 290 identifies offenses relating to property. Specifically,
i. A bankrupt commits an offence if the bankrupt conceals, or removes from
Kenya, any part of his property during the two months immediately
preceding the date on which a judgement order was made against him
ii. with intent to defraud any of the bankrupt’s creditors the bankrupt makes a
gift, delivery or transfer of any part of the bankrupt’s property; or gives a
charge over any part of that property.
• The bankrupt will have committed an offense if two years immediately
preceding the order or after the order is given he:
i. conceals any part of the bankrupt’s property to the value of fifty thousand
shillings or more;
ii. conceals any debt due to the bankrupt or due from the bankrupt; or
iii.fraudulently moves any part of the bankrupt’s property to the value of fifty
thousand shillings or more.
• A bankrupt commits an offence if, during the three years immediately
preceding the time when the bankruptcy order was made the bankrupt
makes a statement of financial position that contains information that is
false or misleading. This is especially so where the statement is made to a
creditor.
• It will also be an offense if in the two years preceding the bankruptcy order
the bankrupt commits the following offenses relating to documents:
i. conceals, destroys, mutilates or falsifies documents relating to the
bankruptcy.
ii. Makes false entries in the document
iii. Fraudulently parts with, alters or makes any omission in the documents
iv. Prevents the production of the documents
• A bankrupt commits an offence if, during the twelve months immediately
preceding the making of the application to the Court for a bankruptcy
order or at any time after he attempts to account for any part of the
property by means of fictitious losses or expenses.
• If during the three years immediately preceding the bankruptcy order the
bankrupt obtains property on credit as a result of making false
representations or by doing some other fraudulent act he commits an
offense.
• It is also an offense for the bankrupt to obtain consent from creditors as a
result of false representations or any other fraudulent act.
• In the 12 months preceding bankruptcy or after the bankruptcy order is
given it will be an offense for the bankrupt to leave or to attempt to leaves
Kenya (either temporarily or permanently), together with any part of any
property to the value of one hundred thousand shillings or more that, by
law, ought to be distributed among the bankrupt’s creditors.
• The general penalty for bankruptcy offenses is a fine not exceeding two
million shillings or to imprisonment for a term not exceeding five years, or
to both.
• It is also an offense for the bankrupt to fail to keep proper records during
the three years immediately preceding the date on which the bankrupt was
adjudged bankrupt.
• The required records are those needed to explain the bankrupt’s
transactions and financial position in the bankrupt’s trade or business, and
includes cash receipts and payments, goods bought and sold, stocktaking
records etc.
• Any undischarged bankrupt who acts or purports to act as a
director of a company or as a partner of a firm or limited liability
partnership commits an offense.
• Section 302 details other bankruptcy offenses which include:
i. Making any false or misleading statement to the official receiver.
ii. Giving undue preference to a creditor in order to defraud the
other creditors
iii.Obtaining a credit of sh 100,000 or more before a final order of
discharge from the bankruptcy is given

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TERMINATION OF BANKRUPTCY

RIARA LAW SCHOOL

• When the bankrupt has applied for discharge, or where he is to be

• A bankrupt commits an offence if the bankrupt did not, when contracting a

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