[dropcap]F[/dropcap]ormer Lugari MP Cyrus Jirongo, whose property has been placed under receivership, is the latest high-profile figure to be declared bankrupt. Other public figures who have previously walked the path of bankruptcy are former Cabinet minister Paul Ngei and former Gatanga MP David Murathe.
A bankruptcy filing can either be on one’s own volition or by the actions of his creditors. Bankruptcy in Kenya has ripple legal effects on the life of a bankrupt person, and his/her property.
Bankruptcy is the legal status of an individual against whom an adjudication order has been made by the court primarily because of his inability to meet his financial liabilities. Adjudication Order in Bankruptcy is a judicial declaration that the debtor is insolvent and it has the effect of imposing certain disabilities upon him and of divesting him of his property for the benefit of his creditors.
When faced with overwhelming debts obligations, some people turn to courts of law to file for bankruptcy. They compel the courts to declare them bankrupt and insolvent, meaning that they no longer have capacity to clear their debts. They also set legal protection from creditors not to pursue them.
However, in the case of Rosanna Pluda vs Philip Moi, it was Mr Moi applied to be adjudged bankrupt and his wife Ms Pluda claimed that not to be the position since as far as she was concerned their matrimonial home in Muthaiga was enough to show that Mr Moi was a man of means and could pay the maintenance prayed for by her.
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She was seeking Ksh 7.5 million for upkeep but the court awarded her Ksh 250,000 a month for her upkeep and the maintenance of their two children. Mr Moi appealed and was granted an order directing him to pay Ksh 150,000 per month in July 2017.
In Jirongo’s case, he was taken to court for failing to pay Ksh 750 million, which he owes eight companies. The former Lugari MP also owes Cotu secretary general Francis Atwoli Ksh 110 million, which the unionist claims he borrowed by failed to repay as promised.
Here are the consequences of being declared bankrupt:
Political life and creditors
Anyone declared bankrupt cannot hold a political or public office. That means Jirongo’s presidential dreams have all but fizzled out and can only be resuscitated once he is discharged from bankruptcy.
Business
A person declared bankrupt cannot be a director in a company. He cannot also enter into a joint business deal without informing his partners that he is bankrupt.
Expenditure
“The Bankruptcy Act provides that one spend no more than 100 shillings at any one given time once they are under the ‘bankrupt’ tag,” says Doreen Khavedi, a lawyer, as quoted by the Standard.
Selling of property
The bankruptcy trustee may not sell any of the bankrupt’s property before the first meeting (held after the trustee has been appointed) is held with creditors. However, he may do so if he is able to show that the property is perishable, that in his opinion the sale of the property may be prejudiced by delay or the expenses will be incurred by the delay. Before selling the property under these exceptions, the trustee must however consult the creditors.
Ownership of property
Until the bankrupt is discharged, whether in or outside Kenya, all property that the bankrupt acquires or that passes to the bankrupt vests in the bankruptcy trustee without that trustee having to intervene or take any other step in relation to the property and any rights of the bankrupt in the property are extinguished.
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Furthermore, the powers that the bankrupt could have exercised in, over, or in respect of that property for the bankrupt’s own benefit vest in the bankrupt’s trustee.
Such property includes property that is held in trust by the bankrupt for another person. The trustee shall hold such property in trust for the benefit of the beneficiaries of the trust.
Matrimonial home
The most affected property in cases of bankrupt is the matrimonial home. According to MMAN Advocates, a leading Kenyan corporate law firm , the reason for this is that the home and any other property owned by the bankrupt vests automatically in the Official Receiver or any subsequently appointed trustee in bankruptcy on the making of a bankruptcy order.
The law firm says emphasis should be placed on the fact that in the majority of cases the single most valuable assets belonging to the bankrupt are included in the bankruptcy.
If assets are jointly owned with a spouse, then the bankrupt’s portion may have to be sold and distributed to the creditors. It is important to make the trustee aware of joint assets so that each case can be viewed individually.
Family Assets
According to the law firm, it has long been accepted that, in divesting the bankrupt of his property for the benefit of his or her creditors, the law should refrain from stripping him or her or his family of the last vestiges of dignity and comfort as represented by their personal clothing, their essential domestic furniture and equipment and the tools or equipment which the bankrupt earns his or her living with and thus supports his or her family with .
“This in turn operates as an exception to the general rule that all the property of the bankrupt should be realised by the trustee in bankruptcy and divided among creditors. In considering the property available to the bankrupt’s creditors the question that should follow is which assets are exempt,” the firm says.
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“A statutory exemption is as provided for in Section 43 of the Bankruptcy Act that provides for a description of the bankrupt’s property divisible among creditors. It should be noted that the items mentioned are not exhaustive,” it adds in a brief on its website.
Bankrupt’s Salary
According to MMAN Advocates, in principle any money which constitutes the bankrupt’s income is claimable in bankruptcy as after acquired property. A rule has therefore been adopted whereby the bankrupt is allowed to retain a proportion of his income to the extent deemed necessary to maintain his or her family in reasonable circumstances.
Claims by relatives
The trustee must distribute the assets available in accordance with the prescribed order of payment. It should be noted that a bankrupt’s debts are usually many and may be varied. The general rule is that all debts provable in bankruptcy rank equally.
