The trustee is the working office in a personal insolvency. Sections 91 to 107 of the Insolvency Act (Chapter 253) set out what the office involves.
Sections 64 to 67 — status, directions and indemnity
The official title is “the trustee of the property of (name of insolvent), an insolvent”. Under that title the trustee may hold property, make contracts, sue and be sued, enter into engagements binding on himself and his successors in office, and do all other acts necessary or expedient in the execution of his office.
91. Subject to the Act and any directions, the trustee shall exercise his own discretion in the management of the estate and its distribution.
92. But he shall have regard to directions given (a) by resolution of the creditors at a general meeting, or (b) by the committee of inspection — and directions of the creditors override those of the committee.
65. He shall conform to directions given by the first meeting under section 54(1)(c), unless the Court, for some just cause, otherwise orders.
A trustee is not personally liable by reason only that (a) the matters on which the adjudication was founded are insufficient to support it, or (b) of any receipt of money or a negotiable instrument in his official capacity, if he has dealt with it as directed by the Court or as required by this Act.
Where an action is brought against him in respect of such money, a Judge may, on proof that he so acted, stay or set aside the proceedings and make such order as to costs as he thinks proper.
Paragraph (a) is significant: a trustee who administers an estate under an adjudication that turns out to be unsupportable is protected. Compare section 282 of the Companies Act, which requires a Court application for the equivalent relief.
Section 99(1) — the powers exercisable alone
(a) receive and decide on proof of debts in the prescribed manner;
(b) carry on the business of the insolvent so far as is necessary for the beneficial winding-up of the business;
(c) sell all the property, including the goodwill and the book debts due or growing due, by public auction or private contract, transferring the whole to one person or selling in parcels;
(d) give receipts, which effectually discharge the payer from responsibility for the application of the money;
(e) prove, rank, claim and draw a dividend in the insolvency of a debtor of the insolvent;
(f) execute all powers of attorney, deeds and other instruments expedient or necessary to give effect to this Act;
(g) exercise any other powers vested in him under this Act.
Section 99(2) — the powers needing sanction
(a) mortgage or pledge any part of the property to raise money for payment of the insolvent’s debts;
(b) appoint the insolvent to superintend the management of the property, to carry on his trade for the benefit of the creditors, or to aid in administering the property on such terms as the creditors direct;
(c) bring or defend any action, suit or other legal proceedings relating to the property;
(d) refer any dispute to arbitration;
(e) compromise any debt, claim or liability — present or future, certain or contingent, liquidated or unliquidated — between the insolvent and any debtor;
(f) make any compromise or other arrangement with creditors in respect of provable debts, or as to any claim arising out of or incidental to the property;
(g) divide among the creditors, in its existing form and at its estimated value, any property that from its peculiar nature or other special circumstances cannot advantageously be realised by sale;
(h) employ a shorthand writer to take notes at a meeting of creditors or an examination.
Sanction may be a general permission or permission in a specified case (s 99(3)).
The Act contemplates employing the insolvent to run the business or help administer the estate. Nobody knows the business better, and the alternative may be a forced sale at a loss. The safeguard is the sanction of the committee and the creditors’ terms.
Where there is no committee of inspection, section 59 lets the Court do what the committee would do; and under section 66 the Court, or a special resolution of creditors, may declare that things needing the committee’s consent may be done without it.
Section 100 — compositions and schemes of settlement
With the sanction of a special resolution of creditors at a meeting of which the prescribed notice specifying the object has been given, and subject to the approval of the Court — testified by a Judge signing the instrument or embodying its terms in an order — the trustee may accept a composition offered by the insolvent, or assent to a general scheme of settlement, with or without a condition that the order of adjudication is to be annulled.
Where annulment is a condition and the Court approves, the Court shall annul the adjudication on the application of an interested person. The Court’s approval is conclusive as to validity, and the composition is binding on all the creditors as to their provable debts. Its provisions may be enforced by order of the Court, and disobedience is a contempt of court.
This is the in-insolvency route out. The Part XIV alternatives — a liquidation by arrangement, or a composition — can be used instead of an insolvency.
Sections 106 and 107 — banking and records
The trustee shall pay all sums received into such bank and account as the majority in number and value of creditors appoint, or failing that as the Court appoints.
If, after a bank is appointed, the trustee keeps more than K100.00 in his hands for more than 10 days, he (a) shall pay interest at 20% per annum on the excess, and (b) on the application of any creditor shall be dismissed from office by the Court — unless he proves his reason for retaining the money was sufficient.
A trustee so dismissed has no claim for remuneration and is liable for any expenses the creditors are put to by the dismissal.
Under section 107, the trustee shall keep proper books of account showing receipts, disbursements and dealings with the estate, and books of minutes of meetings — and, subject to the control of the Court, any creditor may inspect them, personally or by agent. Section 101 permits the trustee to employ a lawyer or other agent, and, where the trustee is himself a lawyer, to contract for remuneration by percentage or otherwise for his services including professional services — a contract the section declares lawful notwithstanding any law to the contrary.
Sections 93 to 97 — oversight, directions and appeals
93. The trustee shall call a meeting of the committee of inspection at least once every two months, and may call special meetings. At the two-monthly meeting the committee may audit the trustee’s accounts and determine whether any, or what, dividend is to be paid.
94. The trustee shall from time to time summon general meetings of creditors to ascertain their wishes; the Court may summon them too, and a member of the committee of inspection may summon one.
95. The trustee may, by written statement verified by affidavit, apply to the Court for its opinion, advice or direction on any question about managing the estate or his duty. Notice goes to all interested persons or such of them as the Court directs. A trustee who acts on that advice is deemed to have acted rightly — unless guilty of wilful fraud, concealment or misrepresentation in obtaining it.
96. For acquiring or retaining possession of the property, the trustee is in the same position as a receiver appointed by the Court in its equitable jurisdiction, and the Court may enforce accordingly.
97. The insolvent, or a creditor, debtor or other person aggrieved by any act or decision of a trustee, may appeal to the Court, which may confirm, reverse or modify it and make such order as it thinks just.
Section 97 is broader than its corporate equivalent: section 332(1)(b) of the Companies Act allows the Court to confirm, reverse or modify a liquidator’s act or decision, but only with leave for a creditor or shareholder. Here no leave is required, and the insolvent may appeal.
Vacancies are filled by the creditors in general meeting (s 62(1)); the Court may suspend or remove a trustee on cause shown (s 62(3)); the creditors may remove one by special resolution at a meeting called for the purpose (s 62(4)); and a trustee who is adjudged insolvent or becomes resident out of the country ceases to be trustee (s 62(5)). Section 63 makes parallel provision for the committee of inspection.
Sources
- Insolvency Act (Chapter 253) — ss 54, 59, 62–67, 91–101, 106, 107
- Companies Act 1997 — ss 282, 332
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.