Divisions 7 and 8 of Part VI of the Insolvency Act (Chapter 253) govern payment out to creditors.
Section 121 — declaring a dividend
(1) From time to time, as the committee of inspection determines, the trustee shall declare a dividend and distribute it among the creditors who have proved.
(2) If the trustee does not declare a dividend for six months, he shall summon a meeting of creditors and explain his reasons.
(3) The trustee shall cause notice of all dividends and moneys payable to creditors, and when and where they are to be paid, to be published in the National Gazette and in such other newspapers as are prescribed.
The timing of dividends is the committee of inspection’s decision, and under section 93(2) the committee may, at its two-monthly meeting, audit the trustee’s accounts and determine whether any, or what, dividend is to be paid. Where there is no committee, section 59 allows the Court to act in its place.
Subsection (2) is a discipline on delay: six months without a dividend obliges the trustee to face the creditors and explain.
Sections 122 and 123 — distant creditors and late proofs
(a) provable debts appearing from the insolvent’s statements or otherwise to be due to persons resident in places so distant that in the ordinary course of communication they have not had sufficient time to tender their proofs or to establish them if disputed; and
(b) provable debts the subject of claims not yet determined.
(1) A creditor who has not proved before the declaration of a dividend is entitled to be paid, out of any moneys in the hands of the trustee before they are applied to any future dividend, any dividends he has failed to receive.
(2) But he is not entitled to disturb the distribution of any dividend declared before his debt was proved on the ground that he did not participate in it.
A late creditor catches up — taking the dividends already missed out of money in hand before the next dividend is paid to everyone else — but cannot unwind what has already been distributed.
The same principle appears in Schedule 10 clause 8 of the Companies Act: a creditor claiming after a payment is paid at the same rate as equally ranking creditors already paid, so far as assets allow, and earlier payments are not disturbed.
Section 122 is the practical safeguard for creditors in remote provinces or overseas — the trustee must reserve for them rather than distribute around them, and must also reserve for claims not yet determined, including those under appeal.
Section 124 — dividends on future debts
For a debt to which section 112 applies — one not accrued due at the date of adjudication — the creditor is entitled to dividends equally with the other creditors, but after deducting for the purposes of the first dividend a rebate at the prescribed rate by way of discount.
The rebate is calculated (a) on so much of the debt as remains unpaid at the declaration of the first dividend, and (b) from the declaration to the time the debt would have become payable under its terms.
So the discount for early payment applies once, at the first dividend, and only for the period still to run. Thereafter the creditor participates on the same footing as everyone else.
Section 125 — enforcing payment of a dividend
(1) An action or suit for a dividend does not lie against a trustee.
(2) If a trustee refuses to pay a dividend, the Court may order him (a) to pay the dividend, and (b) to pay out of his own money (i) interest on the dividend for the time it is withheld and (ii) the costs of the application.
A creditor cannot sue the trustee at common law; the remedy is an application to the Court. But that remedy carries a personal sanction — interest and costs out of the trustee’s own pocket.
Section 125 sits alongside the general section 97 appeal, under which the insolvent or any creditor, debtor or other person aggrieved by an act or decision of a trustee may apply to the Court, which may confirm, reverse or modify it. And the personal exposure echoes section 106(2), under which a trustee who holds more than K100 outside the appointed bank for more than 10 days pays 20% interest and may be dismissed.
Section 126 — unclaimed dividends
Where a dividend remains unclaimed for five years —
(a) it is vested in the State and shall be paid by the trustee into the Consolidated Revenue Fund; and
(b) at any time afterwards a Judge may — (i) in the case of the disability or absence overseas of the person entitled, or (ii) for any other sufficient reason — recommend that the sum be repaid out of money provided for the purpose.
Five years is considerably more generous than the corporate equivalent: under section 373(10) of the Companies Act, money in the Registrar’s account is forfeited 12 months after it is paid in. And unlike that provision, section 126(b) preserves a route back — a judicial recommendation for repayment, expressly contemplating a creditor who was overseas or under a disability.
Sections 127 and 128 — the final dividend and the surplus
When the trustee has converted into money all of the property of the insolvent, or so much of it as can, in the joint opinion of himself and the committee of inspection, be realized without needlessly protracting the insolvency, he shall declare a final dividend.
The test — without needlessly protracting the insolvency — is a judgment shared between the trustee and the committee. It is the same commercial instinct as the requirement in section 303 of the Companies Act that a liquidator act “in a reasonable and efficient manner”.
After the final dividend, and after payment of the debts with interest at the prescribed rate and the costs, charges and expenses of the insolvency, section 128 returns any surplus to the insolvent — and the insolvency moves to close and discharge under Part VII.
Sources
- Insolvency Act (Chapter 253) — ss 59, 93, 97, 106, 112, 121–128
- Companies Act 1997 — ss 303, 373; Schedule 10
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.