The Insolvency Act (Chapter 253) is the personal counterpart of the liquidation provisions of the Companies Act 1997.
Section 2 — who the Act applies to
(1) Except as otherwise provided, the provisions relating to the adjudication of insolvency apply to all debtors who are resident in, or have property in, the country.
(2) A company incorporated or registered under the Companies Act 1997 shall not be adjudged insolvent under this Act.
Companies are dealt with by liquidation, receivership and compromise under the Companies Act. Individuals — including partners and partnerships — are dealt with under this Act.
The connecting factor is wide: residence in the country or property in the country. A non-resident with assets here can be adjudged insolvent.
The two regimes meet at several points. A director ordered to pay under section 350 of the Companies Act is deemed to have committed an act of insolvency under section 21(1) of this Act. An undischarged bankrupt cannot be a director, a receiver, or a liquidator.
Sections 15 to 20 — how an adjudication is made
15. Adjudications of insolvency shall be made only by the Court — and “the Court” means the National Court.
16. Proceedings shall be by petition presented at, and filed in, the Registry.
18(1). A debtor may petition for an adjudication of insolvency against himself; the petition may be in Form 1, signed by the petitioner and attested by a justice, a Commissioner for Affidavits or the Registrar.
20. Where a debtor’s petition is presented, the Court shall proceed to adjudicate without delay and, on due proof, make an adjudication of insolvency.
There are therefore two routes: the debtor’s own petition, and a creditor’s petition, which requires proof of an act of insolvency. A petition against a partnership may be presented by the majority of partners usually resident in the country (s 19).
Under section 17, a person prejudicially affected by an adjudication may, within the prescribed time and on the prescribed notice to all parties, apply to annul it; and if sufficient cause is shown the Court shall annul the adjudication.
Sections 44 and 45 — the date, and the relation back
44. An adjudication takes effect on the date of the order.
45(1). But the insolvency is deemed to relate back to, and to commence at, the time of —
(a) the completion of the act of insolvency on which the order is made; or
(b) where more than one act of insolvency is proved, the first of them proved to have been committed within six months preceding the presentation of the petition.
(2) This applies whether the petition was the debtor’s or a creditor’s.
An insolvency does not relate to a prior act of insolvency unless it is proved that (a) at the time of committing the act the debtor was indebted to a creditor or creditors in a sum sufficient to support a petition, and (b) the debt or debts remain due at the time of the adjudication.
Relation back matters enormously. Because the insolvency is deemed to have begun at the earlier date, the trustee’s title reaches property as at that date, and dealings in the interval are exposed — subject to the protections in section 80 for transactions in good faith and for value without notice.
Sections 46 to 48 — the effects of adjudication
46. The property of the insolvent is divisible among his creditors in proportion to the debts proved in the insolvency.
47(1). A creditor to whom the insolvent is indebted in respect of a debt provable in the insolvency does not have any remedy against the property or person of the insolvent in respect of that debt other than a remedy prescribed by this Act.
47(2). But that does not affect the power of a creditor holding a security over the property of the insolvent to realise or otherwise deal with the security as they could have done otherwise.
Unsecured creditors are drawn into a collective process and lose their individual remedies; secured creditors stand outside it and may enforce. That is the same division as in a company liquidation under section 298(2) of the Companies Act, and it is why a secured creditor must decide under section 115 whether to realise, value and prove for the balance, or surrender the security.
Section 48 completes the picture: a person in custody of the Sheriff, a gaoler or an officer under mesne process, or in execution of a judgment for a debt provable in insolvency, is entitled to an order discharging him out of custody, absolutely or on such terms as the Court thinks proper.
Section 49 — what the order must contain
(a) fix a date — not earlier than six days nor later than 30 days after the order — for a general meeting of creditors, for the purpose of the election of a trustee; and
(b) specify a time and place at which the debtor shall come in and deliver to the trustee a full and accurate statement, verified on oath, of (i) his debts and other liabilities; (ii) the names and residences of his creditors so far as known to him; and (iii) the causes of his inability to meet his engagements.
Under section 43, a copy of the order is published in the National Gazette and advertised locally as prescribed — and production of the Gazette is conclusive evidence in all legal proceedings that the debtor was duly adjudged insolvent and of the date, without proof of the petitioning creditor’s debt or of any act of insolvency.
The definitions that matter — section 1
| Term | Meaning |
|---|---|
| Special resolution of creditors | A majority in number and 75% in value of creditors present and voting |
| Extraordinary resolution | The same majority at one meeting, confirmed by a majority in number and value at a second meeting held 7 to 14 days later |
| Secured creditor | A creditor holding a mortgage, charge or lien on the insolvent’s estate as security for a debt |
| Property | Money, goods, things in action or land, and obligations, easements and other estates or interests — present or future, vested or contingent |
| Liability | Includes compensation for work done, and obligations to pay money or money’s worth — fixed or unliquidated, present or future, certain or contingent |
| Trustee | The official trustee or an elected trustee acting in respect of the estate |
Under section 3, in calculating a majority of creditors a creditor whose debt does not exceed K20.00 is not counted in reckoning a majority in number, though the debt is taken into account in reckoning a majority in value.
Sources
- Insolvency Act (Chapter 253) — ss 1–4, 15–21, 43–49, 80, 115
- Companies Act 1997 — ss 129, 256, 298, 328, 350
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.