Section 4 of the Insolvency Act (Chapter 253) defines the estate: what the trustee gets, and what the insolvent keeps.
Section 4(1) — what is divisible
(a) all the property (i) belonging to or vested in the insolvent at the commencement of the insolvency, or (ii) acquired by him, or devolving on him, during the insolvency; and
(b) subject to Part XI, the capacity to exercise, and to take proceedings for exercising, all the powers in or over or in respect of property that might have been exercised by him for his own benefit at the commencement of or during the insolvency; and
(c) subject to subsection (2), all goods and chattels in the possession, order or disposition of the insolvent at the commencement of the insolvency by the consent and permission of the true owner — (i) of which the insolvent is the reputed owner, or (ii) of which he has taken on himself the sale or disposition as owner.
(2) Paragraph (c) does not apply to things in action other than debts due to the insolvent in the course of his trade or business.
Goods that are not the insolvent’s at all can fall into the estate. If the true owner allowed the insolvent to have them in his possession, order or disposition, and the insolvent was their reputed owner or dealt with them as if he owned them, they are divisible among his creditors.
The principle protects those who gave credit on the strength of apparent wealth. It is why goods on retention of title, on hire purchase, or on consignment should be marked, documented, and where possible registered — and why bills of sale matter: under section 4(4) the section does not affect the validity of any duly registered bill of sale, or of a preferable lien on wool or crops, a mortgage of sheep, cattle or horses, or a charge on stock or crops comprised in an instrument under the Instruments Act.
Note the reach of paragraph (a)(ii) as well: after-acquired property vests too. Property that comes to the insolvent during the insolvency — an inheritance, a windfall, a legacy — is divisible among the creditors.
Section 4(3) — what is not divisible
(a) property held by the insolvent on trust for any other person;
(b) the tools of his trade and the necessary wearing apparel and bedding of himself and his wife and children, to a value — inclusive of tools, apparel and bedding — not exceeding K40.00;
(c) policies of life assurance or endowment, except to the extent of a charge on the policies in respect of the premiums paid during the two years immediately preceding the date of adjudication.
Trust property was never the insolvent’s beneficially, and the exclusion states the obvious. Compare section 373(2) of the Companies Act, which excludes property held on trust from what vests in the Registrar on a striking-off.
The K40 allowance for tools, clothing and bedding is a fixed figure set long ago and never raised. It is worth noting for what it says about the scheme: the exemptions in this Act are minimal, and the debtor’s protection lies in discharge rather than in exempt property.
The life policy exclusion is more generous, and important. A policy is preserved for the family, subject only to a charge for two years’ premiums — the premiums paid in the run-up to the adjudication, which represent value diverted from creditors.
Section 68 — vesting in the trustee
(1) On the appointment of a trustee, the property of the insolvent is immediately divested from the official trustee and vested in the trustee so appointed.
(2) The property passes from trustee to trustee and vests in the trustee for the time being during his continuance in office without any conveyance, assignment or transfer.
Automatic statutory vesting, as with section 238 of the Companies Act on an amalgamation. No documents are needed to move the estate from one trustee to the next.
Sections 71 to 73 — proceeds of an execution sale
71. Where property has been taken and sold in execution for a sum of not less than K100.00, the Sheriff, bailiff or other officer shall retain the proceeds for 14 days.
72. If, within that period, notice is served that an insolvency petition has been presented against that person, the officer shall hold the proceeds — after deducting sufficient to defray the costs and expenses of the execution creditor — on trust to pay them to the trustee.
73. If no such notice is served within the 14 days, or a notice is served but the debtor is not adjudged insolvent, the officer may deal with the proceeds as if no notice had been served.
The parallel with company law is close: sections 301 and 302 of the Companies Act deprive an execution creditor of the benefit of an incomplete process and require the officer to hold and account. Here, too, the execution creditor’s costs come off first — and the trigger is notice of the petition, so a creditor who knows of a petition should serve notice on the Sheriff at once.
Section 74 — salary, pension and income
(1) Where an insolvent is or has been employed in the Public Service, or is in receipt of a pension or compensation granted by an Act, the trustee — or, after the close of the insolvency, the Registrar — shall receive for distribution among the creditors so much of the salary, emolument or pension as the Court, on the trustee’s application, thinks just and reasonable. Payment is made as the Court directs, with the written consent of the Minister.
(3) Where an insolvent receives a salary or income otherwise, the Court shall, on the trustee’s application, from time to time make such order as it thinks just for payment of the salary or income, or part of it, to the trustee during the insolvency or to the Registrar after its close.
Earnings are not property vesting under section 4. They reach creditors only through a Court order under section 74, made on the trustee’s application and set at what is just and reasonable — leaving the insolvent enough to live on and to keep earning.
Note that an order may extend beyond the close of the insolvency, with payments then made to the Registrar.
Sections 81 and 82 — property abroad and property held by others
81. Where an insolvent has property outside the country, the Court may order him to execute all such deeds and instruments and do all such acts as are necessary to enable the trustee to realise or make available that property or its proceeds, or such part as the Court thinks proper for distribution.
82(1). A banker, attorney or agent of an insolvent shall pay and deliver to the trustee all moneys and securities in his possession or power in that capacity, unless by law he is entitled to retain them.
82(2). Failure is a contempt of court, punishable on the trustee’s application.
82(3). A person is not entitled to withhold possession of books of account, papers or writings relating to the estate, or to claim a lien on them.
Section 82(3) is the personal-insolvency counterpart of section 313 of the Companies Act, which denies a lien over company records as against a liquidator. Here there is no compensating preferential claim — the lien simply fails.
Sources
- Insolvency Act (Chapter 253) — ss 4, 68–74, 81, 82
- Companies Act 1997 — ss 238, 301, 302, 313, 373
The Instruments Act, referred to in section 4(4), is cited here without a link as it is not currently available on PacLII.
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.