Sections 25 to 33 of the Insolvency Act (Chapter 253) set out who may present a creditor’s petition and how.
Section 25(2) — the debt thresholds
(a) K100.00 or more to a single creditor; or
(b) K140.00 or more to two creditors; or
(c) K200.00 or more to three or more creditors,
the creditor or creditors may present a petition (d) that the debtor be adjudged an insolvent, and (e) alleging as the ground for adjudication any act or acts of insolvency.
Under section 25(1), any number of creditors in partnership are deemed to be a single creditor.
The tiered thresholds allow small creditors to join forces. Two creditors owed K70 each can petition together; neither could alone. That is deliberate — insolvency is a collective process, and the Act encourages a collective start.
Section 25(3) — the qualities of the petitioning debt
(a) must be a liquidated sum due and subsisting at both times — (i) when the act of insolvency was committed, and (ii) when the petition was presented; and
(b) must not be a secured debt, unless the petitioner (i) states in the petition that he is ready to give up the security for the benefit of the creditors in the event of adjudication, or (ii) gives an estimate of the value of his security.
Liquidated. An unliquidated claim — damages for breach of contract, a claim in tort — cannot found a petition, however large. Judgment must be obtained first.
Due at both dates. The debt must have been due when the act of insolvency was committed as well as when the petition is presented. A creditor whose debt arose after the act of insolvency cannot rely on that act.
Section 25(5) is the one exception: a person who gave credit for valuable consideration for a sum payable at a certain time that had not elapsed when the act of insolvency was committed may petition or join in petitioning, whether or not the time for payment has arrived at the date of the petition.
A creditor who gives an estimate of the value of the security (a) may be admitted as a petitioning creditor to the extent of the balance after deducting the estimated value; and (b) if so admitted, shall, on application by the trustee within the prescribed time after adjudication, give up the security to the trustee for the benefit of the creditors on payment of the estimated value.
That is a real discipline. Undervalue the security to enlarge the petitioning debt, and the trustee may take it at that price. The same logic appears in section 115 for proving a secured debt, and in section 353(7) of the Companies Act, where the liquidator may redeem at the assessed value.
Sections 26 to 29 — form, signature and verification
26. The petition may be in Form 2, and the section sets out short statements of each act of insolvency that may be used — for example “failed for . . . days to pay, secure or compound a debt of K . . . that he was required to pay by a debtor’s summons”, or “suffered his property to be seized and detained for four days in execution for K100.00 or more”.
27. The petition shall be signed by the petitioner or a person authorised by section 28 to verify it.
28. It shall be verified by the oath of the petitioner — or, for a corporation or company, by the manager, secretary or other authorised officer; for partners, by one only of the partners; and for a petitioner out of the country, by a duly authorised attorney or agent in the country. Verification is by affidavit in Form 3, annexed or subscribed to the petition, and a person verifying who is not the petitioner must show in the affidavit that he is authorised.
29. The verifying affidavit is sufficient prima facie evidence to support the petition.
The short statements let a petition allege an act of insolvency in a few words. But the underlying act must still be proved if the debtor appears and contests, and must have occurred within six months before the petition under section 22.
Section 29 matters procedurally: the affidavit establishes a prima facie case, so the burden of displacing it falls on the debtor at the hearing.
Sections 30 to 33 — service and appearance
30. The petition shall be served on the debtor, and the copy served shall have endorsed on it a summons in Form 4, signed by the Registrar and sealed with his official seal. Service may be personal, in any other prescribed manner, or in such manner as the Court, on the petitioner’s application, directs.
31. No fee is payable by a debtor for entering an appearance to a petition.
32. If, at the expiration of four days after service — or such further time as is prescribed or as the Court thinks necessary to enable the debtor to appear — the debtor has not entered an appearance at the place appointed by the summons, the Court may, on proof of service, proceed to adjudicate the debtor insolvent.
33. If the debtor appears, the petition shall be set down for hearing in Chambers before a Judge.
A debtor who does nothing for four days after service can be adjudged insolvent without a hearing on the merits. Section 31 removes any excuse of cost — entering an appearance is free.
The Court retains a discretion to allow further time where necessary to enable the debtor to appear, and a person prejudicially affected may later apply under section 17 to annul the adjudication, which the Court shall do if sufficient cause is shown. But those are remedies for a problem better avoided.
Where the debtor does appear, the hearing proceeds under sections 34 to 38, and section 39 governs petitions against partnerships.
Sources
- Insolvency Act (Chapter 253) — ss 17, 21, 22, 25–33, 39, 115
- Companies Act 1997 — s 353
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.