Management 202: Bankruptcy Law




Generally a bankrupt means a person who is unable to pay his debts. However no person can be called bankrupt unless a competent court declares him as a bankrupt. Therefore a bankrupt means a person against whom an order of bankruptcy has been passed by the court.


An Act of bankruptcy means some conduct or behavior of the debtor which shows that he is financially embarrassed.

Bankruptcy proceedings can only be instituted against a person if he commits an act of Bankruptcy

A debtor is said to have committed an act of Bankruptcy if he does the following Acts;

  • Transfers or assigns his property to a third party (Trustee) for the benefits of his creditors generally.
  • If he transfers his property with intention of defrauding/ delaying his creditors
  • If he makes any transfers which constitutes fraudulent preference.*A fraudulent preference means, deliberate transfer of property/payments by a debtor to one or more creditors with intention of giving them preference over the rest
  • If the debtor departs from or remains out of Kenya or out of his dwelling house/place of business or secludes himself with the intention to defeat, delay or deprive his creditors of the means of communicating with him.
  • If any of the debtors property is sold or attached by court for the purpose of payment of money.
  • If the debtor himself files in court a declaration of his inability to pay his debts or presents a bankruptcy petition against himself.
  • If the debtor has given notice to any of his creditors that he has suspended or is about to suspend payment of his debts. If a creditor has obtained a court order against the debtor to pay money and the debtor does not comply with the notice of the order within the period contained in notice.

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