(i) Any creditor who wishes to make a claim against the estate of the Bankrupt must prove his debt to the satisfaction of the Trustee. The Trustee is under a duty to convert all the Bankrupt’s property which is divisible among creditors into money and to distribute the proceeds by way of dividends among creditors who have proved in accordance with a due order of priorities and in proportion to the amounts due to them. Until he has proved his debt a creditor is not entitled to vote at any meeting of creditors or to receive any dividend.
1. Debts Provable In Bankruptcy
(a) Provable Debts
Section 35 (3) B.A. states that all debts and liabilities present or future certain or contingent to which the debtor is subject at the date of the receiving order or to which he may become subject before his discharge by reason of any obligation incurred before the date of the receiving order are deemed to be debts provable in bankruptcy.
(b) Non – Provable Debts SECTION 35 BA
The following debts are not provable in bankruptcy
(i) Claims for unliquidated damages in tort; this is under Section 35(1) B.A. herein demands in the nature of unliquidated damages arising otherwise than by reason of a contract promise or breach of trust are not provable in bankruptcy. Therefore claims arising out of a tort committed by the bankrupt cannot be proved unless the damages become liquidated by agreement or judgment before the dates of the receiving order. A claim arising out of a breach of contract fraud or breach of trust cannot be excluded merely because the claim might alternatively be founded in tort.
(ii) Debts incurred after notice of unavoidable act of bankruptcy under Section 35(2) B.A.
(iii) Debts incurred after the date of the receiving order Section 35(3) BA
(iv) Unenforceable Debts: these are debts founded on an illegal or immoral consideration or statutes-barred debts;
(v) Debts incapable of being estimated under Section 35(6) of B.A
(vi) Alimony and maintenance – the common law liability of a husband to maintain his wife is not a contractual liability and therefore does not constitute a provable debt.
(c) Contingent Liabilities
A contingent liability is one which at the date of proof is not certain to arise. It is dependent upon the happening of some event which may or may not take place. Subject to certain rules a creditor may prove for the full value of a contingent liability
(d) Periodical Payments:
Under Section 19 of the BA where rent or other payment falls due at stated periods and the receiving order is made at any time other than any one of those periods the person entitled to the payment may prove for a proportionate part thereof upto the date of the order as if payment accrued due from day to day.
(e) Interest on Debts:
Under Section 36 B.A. here interest on debts is provable and payable.
2. Mutual Dealings ( Read class notes)
A creditor must subtract from what he is owed , what he owes a debtor.
3. Secured Creditors
Those who hold mortgages , charges or a lien on the debtor’s property are the secured creditors. On the debtor’s bankruptcy he may
1. Rely on the security and not prove at all; or
2. Surrender the security and prove the full amount of the debt; or
3. Realise his security and prove for the balance if any; or
4. Estimate the value of his security and prove for the balance.
4. Landlord’s power of distress
Under Section 40 B.A. The position is somewhat similar to that of a secured creditor. He is entitled to seize the goods of a tenant in satisfaction of the rent due to him. In proving of debts the rules laid down in the 2nd schedule to the Bankruptcy Act must be observed.
5. Rules As To Proof Of Debts
In proving debts the rules laid down in the 2nd schedule must be observed as read with sec. 37 BA
6. Order of Payments:
The Assets remaining after payment of the expenses properly incurred in preserving , getting in and realising the assets of the bankrupt must be paid out in the following order of priority:
1. Costs and Charges incurred in the administration of the Estate;
2. Preferential Debts;
3. Unsecured debts;
4. Deferred Debts;
5. If there is any surplus this is to be returned to the Bankrupt. Section 38-39 B.A.
Distribution 66-73 BA
SMALL ESTATES:
Under Section 120 if a petition is presented and the value of the debt is not more than KShs. 12 ,000 the court may order that the debtor’s Estate be administered summarily whereupon the provisions of the BA will apply subject to the following modifications.
1. Should the debtor be adjudged bankrupt , the official receiver shall be the Trustee in Bankruptcy;
2. There is no committee of inspection , everything is done by the official receiver;
3. Everything else may be modified to simplify the procedure except for the provisions relating to examination and discharge of the debtor.