How and when can a person be declared bankrupt

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How and when can a person be declared bankrupt


From left to right: Judge David Majanja, Judge James Makau, Judge Hatari Waweru and Judge Francis Tuiyott. PHOTO FILE | NMG

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Summary

  • Last year, Judge James Makau rejected a bankruptcy petition against Albert Kubai Mbogori, who was wanted for a debt of 18 million shillings, resulting from compensation from the businessman’s family. that he shot 13 years ago.
  • The judge dismissed the petition claiming that Mbogori did not meet the conditions set out in the bankruptcy proceedings.
  • Under Section 304 of the Insolvency Act, a debtor can apply for interim orders to enable him to make a proposal, which provides that a person acts as supervisor of the voluntary arrangement.
  • In his ruling, Justice Tuiyott said the overall design of the law is to give a troubled debtor a second chance.

In tragic times, we are used to feeling injustice in the way the world has treated us unfairly rather than accepting it as an act of God that defies explanation.

As John Stewart Collins says, although “the worm forgives the plow,” sometimes a series of unfortunate events have no explanation or justification and can only teach us to persevere if they do not break us down.

James Mwangi Nderitu and his wife Joyce Wangechi Mwangi, also business partners, thought they had had enough and chose the dreaded path: they sought to be declared bankrupt.

The two, operating as Jajo Enterprises, started an agrovet business in 2002. They sold agrochemicals, veterinary products, animal feed, licks and seeds at their store in Naroosura, County. from Narok. As the business grew, they opened another store in the center of Ewasonyiro, still in the same county.

Then tragedy struck in 2007/8 when Kenyans swooped down on each other in the post-election violence. The couple lost everything to thieves who looted their property.

Later, months after the violence ended and as the economy improved, the couple decided to expand their business and therefore took out a loan of 4 million shillings to grow tomatoes on 27 acres of land in Narok.

Unfortunately, a pest known as Tuta absoluta and the tomato spotted wilt virus disease destroyed the crop. Despite this, their creditors demanded payment. Also struggling with a difficult business environment, they closed their two stores.

In the High Court petition, Mr Nderitu said he was also struggling to pay off a loan he took from Equity Bank to purchase a vehicle, also involved in an accident in November 2016. He repaired the vehicle and sold it to consolidate his business.

Believing that their financial problems had become too great, they went to court to seek protection by being declared bankrupt. They argued that instead of being in civil jail, they should be declared bankrupt.

In total, the couple said they were in debt of Sh 9,795,370 to around 20 creditors. The creditors included Osho Chemical Industries Limited, which supplied them with various agro-veterinary products and demanded 3.2 million shillings.

They were also owed to Twiga Chemical Industries Ltd Sh986 007 and Amiran Kenya Ltd Sh1 106 901.

His wife told the court in another bankruptcy proceeding that she was a housewife although she helped run a local community organization where she earned 15,000 shillings. She used the money for her maintenance and that of her children.

In his decision, Judge David Majanja stated that under section 32 (1) of the Insolvency Act 2015, a debtor has the right to apply to be declared bankrupt because he is incapable to pay his debts. He said that by examining her condition and her testimony, he was convinced that she was unable to pay her debts.

“Although the debtor earns money for his maintenance, I am convinced that the debtor is unable to pay his debts,” Judge Majanja said at Mr. Nderitu’s request.

With the decision, the couple’s property will be taken over by the official receiver or any other person designated by the official receiver, as trustee.

Although the couple’s request was granted, there are cases where the court has rejected a petition from an individual seeking bankruptcy.

Last year, Judge James Makau rejected a bankruptcy petition against Albert Kubai Mbogori, who was wanted for a debt of 18 million shillings, resulting from compensation from the businessman’s family. that he shot 13 years ago.

The judge dismissed the petition claiming that Mbogori did not meet the conditions set out in the bankruptcy proceedings.

“In view of the foregoing, I am not convinced that the applicant has demonstrated his inability to pay the amount owed to the creditor”, declared the judge.

According to Judge Makau, a person who refuses to disclose all relevant material information to the court and chooses to give incomplete information to allow the court to assess his inability to pay the debt runs the risk of having the petition rejected.

The judge added that the petition was a ploy to avoid paying the debt. The man was then arrested and sent to civilian prison.

In the ruling, Justice Makau said the bankruptcy process is meant to protect genuine people who have sadly found themselves in debt, “but not fraudsters or con artists.”

Going to court, Mbogori said he was unable to pay the money, which was supposed to be compensation for Edward Benjamin Rahedi’s family. He told the court that he depended on his wife for upkeep and that she was the one who paid the rent for the house and the children’s school fees.

Mr Mbogori also said that his friends and family were organizing a fundraiser for him and that he was extremely sorry about the incident.

The man was charged with shooting Mr. Rahedi in a road rage incident on December 1, 2007. He was arrested and charged with murder after Mr. Rahedi’s death.

The High Court found him guilty of manslaughter and sentenced him to 14 months in prison. Ms Rahedi then filed a claim for damages for loss of dependency and loss of life expectancy. She successfully argued that Mbogori fired the bullet negligently, resulting in the death of her husband.

Judge Hatari Waweru then ordered Mbogori to pay the family 12.5 million shillings as compensation. Ms Rahedi was to get Sh7 million while her two children were to get Sh2 million each, while Mr Rahedi’s father was to get Sh500,000.

Mbogori lodged an appeal but it was rejected by the judges of the Court of Appeal who declared that the amount was justified. It was then that he filed for bankruptcy.

Another businessman’s request was also turned down by Judge Francis Tuiyott last year, after seeking a temporary order allowing him to schedule debt repayment.

Mr. Rajendra Ratilal Sanghani went to court, fearing that his creditor, Schoon Ahmed Noorani, would recall the debt.

Evidence presented to the court showed that the two were good friends and that Mr. Noorani advanced 477 million shillings to Mr. Sanghani.

Although the debtor called his creditor shylock, the latter maintained that he was an investor but advanced the money to his friend who was to repay it with interest.

Mr Sanghani told the court that talks or arrangements to pay the debt in installments had collapsed.

Under Section 304 of the Insolvency Act, a debtor can apply for interim orders to enable him to make a proposal, which provides that a person acts as supervisor of the voluntary arrangement.

In his ruling, Justice Tuiyott said the overall design of the law is to give a troubled debtor a second chance.

However, he said a claim should be dismissed immediately if it is clear that the motive is to achieve a collateral objective of providing protection to an unworthy debtor.

“Although the court is not expected to make a detailed examination of the debtor’s fortunes (perhaps misfortunes), the evidence presented must be such as to establish a prima facie case that the debtor is insolvent and unable to pay his / her debts, ”said the judge.

He stated that a debtor is then required to provide a true and complete inventory of his creditors and debtors and other liabilities and assets.

In Mr Sanghani’s case, the judge noted that the businessman had not given details about his other creditors and debtors and his other liabilities and assets.

The request was rejected after it was discovered that the businessman owned large estates, including buildings in Nairobi’s Riverside district as well as in Mombasa.


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