Not every insolvency ends in a certificate of discharge. Divisions 3 and 4 of Part VII of the Insolvency Act (Chapter 253) deal with what happens then.
Section 139 — payments to influence creditors
(1) A payment, contract, covenant or security for the payment of money, made or given by an insolvent or other person to or in trust for a creditor, for the purpose of, or with intent to, persuade or induce him —
(a) to forbear from opposing the grant of a certificate of discharge; or
(b) to consent to the grant of one; or
(c) not to appeal against the grant of one,
is void.
(2) Any money paid may be recovered; any money agreed to be paid or secured is not recoverable.
Two of the four discharge routes turn on creditor consent — a majority in number of creditors owed K20 or more under sections 133(1)(a) and 134. Without section 139, consent could simply be bought from the creditors who mattered, at the expense of the rest.
Note that the section catches payments by “an insolvent or other person” — a family member or business associate funding the consent is equally caught. And note the asymmetry in subsection (2): money already paid comes back, but a promise to pay is unenforceable. The creditor who takes the inducement loses either way.
This complements the oath required by sections 133(2) and 134(2), in which the insolvent must swear he has not granted or promised any payment or security to obtain consent and has entered into no collusive agreement.
Section 140 — the position of an undischarged insolvent
An “undischarged insolvent” is one (a) whose insolvency has closed under Division 1 and (b) who has not been granted a certificate of discharge.
No portion of a debt provable under the insolvency is enforceable against the property of an undischarged insolvent until the expiration of three years from the close of the insolvency.
If during that period the insolvent pays his creditors such additional sum as, together with the assets realized, makes up 100% of all debts proved, he is entitled to a certificate of discharge in the same manner as if that amount had originally been paid out of his property.
If at the end of the three years the insolvent has not obtained a certificate, any balance remaining unpaid on a proved debt — without interest in the meantime — shall be deemed to be a subsisting debt in the nature of a judgement debt, and may be enforced against any property of the debtor —
(a) subject to the rights of persons who have become creditors since the close of the insolvency; and
(b) with the consent of the Court,
but only to the extent, and at the time and in the manner, the Court directs, after the prescribed notice and acts.
The three years are a shelter: the insolvent can work, earn and accumulate without old creditors seizing what he acquires. Subsection (3) makes that a period of opportunity — pay everyone in full and discharge follows.
But subsection (4) does not extinguish the debts. They become judgment-style debts, subordinated to post-insolvency creditors and enforceable only with the Court’s consent and on its directions. Interest does not accrue in the meantime.
The contrast with a company is complete: a company that fails is removed from the register and ceases to exist, though under section 376 of the Companies Act the liability of its former directors and shareholders survives.
Sections 141 and 142 — annulment on payment in full
If an insolvent, or a person on his behalf, (a) pays all his creditors in full or (b) obtains a release of the debts, he may apply for an order annulling the adjudication — and on being satisfied that all creditors have been paid in full or have released their debts, the Court may make the order, on such terms as to commission, remuneration or charges already incurred as it thinks just.
(1)(a) All sales and dispositions of property and payments duly made, and all acts previously done, by the trustee or persons acting under his authority, or by the Court, are valid.
(1)(b) The property of the insolvent (i) vests in such person as the Court appoints, or (ii) in default of an appointment reverts to the insolvent, for all his estate or interest, on such terms and conditions as the Court declares.
(2) A copy of the order shall be published without delay in the National Gazette and advertised locally in the prescribed manner.
Discharge releases the insolvent from provable debts but leaves the adjudication standing. Annulment undoes the adjudication itself — while protecting everything the trustee did in the meantime.
There are three routes to annulment in this Act: section 17, where a person prejudicially affected shows sufficient cause; section 100(2), where annulment is a condition of an approved composition or scheme; and section 141, on payment in full or release.
Sections 143 to 145 — release of the trustee
When an insolvency is closed, the trustee shall call a meeting of creditors to consider his application for release. At it he shall lay before them an account showing how the insolvency has been conducted, with a list of unclaimed dividends and outstanding property, and inform them that he proposes to apply.
A copy of the account goes to the official trustee at least 14 days before the application, and the official trustee shall report to the Court on it and on any other matters he thinks should be reported.
Creditors may express their opinion as to the trustee’s conduct, and any of them — or the official trustee — may appear and oppose the release. After hearing what is put against it, the Court shall grant or withhold the release.
The Court shall (a) make any order it thinks just charging the trustee with the consequences of any act or default contrary to his duty, and (b) suspend his release until the order has been complied with and the Court thinks it just to grant it.
Under section 144, an order of release discharges the trustee from all liability in respect of any act done or default made in the administration or in his conduct as trustee — but the order may be revoked on proof that it was obtained by fraud.
Under section 145, unclaimed dividends and other moneys remaining under the trustee’s control at or after the close are accounted for and paid over as the Rules of Court direct, and may be claimed by those entitled; and the trustee shall deliver a list of outstanding property to the prescribed persons and, where practicable, realise it for the benefit of the creditors. Unclaimed dividends themselves vest in the State after five years under section 126.
Sources
- Insolvency Act (Chapter 253) — ss 17, 100, 126, 130–134, 139–145
- Companies Act 1997 — ss 366, 376
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.