BANKRUPTCY & COMMERCIAL

SECURITIES Notes
BANKRUPTCY & COMMERCIAL
SECURITIES
HISTORICAL REVOLUTION OF BANKRUPTCY LAW
1. Bankruptcy Act Cap 53 Laws of Kenya
2. Ian Macneil Bankruptcy in East Africa
3. Fridman Bankruptcy Law and Practice
4. Thomspson J.H. The principles of Bankruptcy Law
5. Holdsworth on Historical Development

Basically the law of bankruptcy has a long history and only a summary of
the main developments may be highlighted

Summary.
1542 Act - aimed mainly at securing the property of the debtor for his
creditors.
1834 Act - extended bankruptcy law to none traders.

Some land owners

had become debtors

and had to be catered for by the law.
1869 Act- to amend and consolidate the existing law was passed. This Act
contained many of

the substantive bankruptcy law principles which are now in

operation today.
1883 Act -laid the basis of modern Bankruptcy administration & separated
the judicial and
administrative functions. The judicial functions remained vested
in the High Court
and County Courts while the administrative functions were
transferred to a Board
of Trade. It introduced the present day law on the following
1.

The public investigation by the Court into the debtors conduct;

2.

Punishment for Bankruptcy offences committed by the bankrupt;

3.

strict investigation and prove of debt;

4.

General supervision of proceedings including the control of funds and

independent audits of trustees accounts.
1890 Act laid down the conditions for the discharge of a bankrupt
1913 Act - made offences by Bankrupts punishable summarily and tightened
the law as to their
criminal liability.
1915 - The Bankruptcy Rules of 1915;
1926 - The Bankruptcy Amendment Act of 1926;
1940 Act

1.

In the English medieval and mercantilist periods the law commences with
a statute enacted during the reign of King Henry VIII which largely dealt
with fraudulent traders. This legislation was passed in 1542 and it aimed
mainly at securing the property of the debtor for his creditors.

It did

nothing to relieve the debtor of his obligations if his debts exceeded the
value of his property. If this occurred the debtor remained liable for the
debt and could even be imprisoned for failure to repay. It should be noted

that the law was introduced specifically to protect creditors. However, each
creditor proceeded against the debtor individually and the debtors property
was acquired on the principle of first come first served.
2.

Early bankruptcy law only applied to traders. It should be recalled that

this was the mercantilist free trade era of the 16 th and 17th centuries. The
traders complained against the unfairness of the law but their outcry for
protection led only to peacemeal reforms and amendments but the
punishment of debtors was not alleviated or mitigated in any way. None
traders who could not pay their debts were subject to another set of
statutes relating to insolvent debtors.

3.

In the 18th and 19th centuries there was great expansion in the availability
of credit.

This was the era of the formation of Joint

Stock Companies

which preceded the modern limited liability

companies. Debtors were therefore on the increase. This is as a result of

the historical development of capitalism as a mode of production where
competition is emphasised culminating in monopoly capitalism hence those
who cannot compete within the system fallout and many become debtors.
However, it was discovered that people do not become debtors of their own
free will.

A distinction is sought to be made between

dishonest debtors who should be punished and the

honest

but

unfortunate

somewhat be protected.

ones

who

should

In 1834 the bankruptcy law was

extended to none traders. Some land owners had become debtors and had
to be catered for by the law.

4.

In 1869 an Act to amend and consolidate the existing law was passed. This
Act contained many of the substantive bankruptcy law principles which are
now in operation today.

The broad principle of the Act was that the

Bankrupt should be a freed person. He should be freed not only from his
debts but also from every possible claim or liability except for personal torts
committed by him. On the other hand, all creditors were grouped together
for purposes of proceeding against the debtor. The Act also provided for the
administration of bankruptcy law and matters in the London Bankruptcy
District by Judges of the High Court specially appointed by the Lord
Chancellor and in the Counties by County Court Judges.

There was no

separation between the judicial and administrative functions both of which

were exercised by the court.

The administration of bankruptcy matters

under the 1869 Act did not work well due to the lack of official control over
the Trustees in Bankruptcy which was a new office created by the Act in the
place of the former system of Official Assignees.
In 1883 another Act was passed in England which repealed the 1869 Act
and amended and consolidated the law. This is the Act that laid the basis of
modern

Bankruptcy

administration.

administrative functions.

It

separated

the

judicial

and

The judicial functions remained vested in the

High Court and County Courts while the administrative functions were
transferred to a Board of Trade. The 1883 Act also introduced the present
day law on the following

The public investigation by the Court into the debtors conduct;

Punishment for Bankruptcy offences committed by the bankrupt;

strict investigation and prove of debt;

General supervision of proceedings including the control of funds and

independent audits of trustees accounts.

No important reforms were introduced by the Bankruptcy Act of 1890 and

the Bankruptcy and Deeds of Arrangement Act of 1913. The main reforms
made by the 1890 Act was in respect of the conditions for the discharge of a
bankrupt. The 1913 Act made offences by Bankrupts punishable summarily
and tightened the law as to their criminal liability.
The present law of bankruptcy in England is contained in the following:1.

The Bankruptcy Act of 1940 which was a consolidating Act of Bankruptcy

Legislation;

2.

The Bankruptcy Rules of 1915;

3.

The Bankruptcy Amendment Act of 1926;

4.

The Judicial Decisions on the construction of these statutes.

However, it is important to note that there have been subsequent
developments in England culminating in the enactment of the 1986
Insolvency Act. In Kenya, Bankruptcy is governed by the Bankruptcy Act
1930, the present Chapter 53 of the Laws of Kenya.
1.

This Act is largely identical to the English Bankruptcy Act of 1940

and the Bankruptcy Amendment Act of 1926.

2.

The Bankruptcy Rules are again similar to the English Bankruptcy Rules of
1952 which do not differ significantly from the English bankruptcy rules of
1915.

3.

Legislation dealing with Deeds of Arrangement is again patterned on the

English Act of 1914 and this is the Deeds of Arrangement Act of 1930 which
is the current Chapter 54 of the Laws of Kenya;

Bankruptcy & Insolvency

Bankruptcy is the legal status of an individual against whom an adjudication

order has been made by the court primarily because of his inability to meet
his financial liabilities and Adjudication Order in Bankruptcy is a judicial
declaration that the debtor is insolvent and it has the effect of imposing
certain disabilities upon him and of divesting him of his property for the
benefit of his creditors.
Bankruptcy must be distinguished from insolvency which may be defined as
the inability of a debtor to pay his debts as and when they fall due. Whether
or not a person is insolvent is purely a question of fact thus a person can be
insolvent without being bankrupt but he cannot be bankrupt without being
insolvent.
OBJECTS OF BANKRUPTCY LAWS
Three main objects of Bankruptcy Laws within the common law jurisdiction
have been identified as follows:
1.

To secure an equitable distribution of the property of the debtor among his

creditors according to their respective rights against him;

2.

To relieve the debtor of his liability to his creditors and to enable him to
make a fresh start in life free from the burden of his debts and obligations;

3.

To protect the interests of the creditors and the public by providing for the
investigation of the conduct of the debtor in his affairs and for the
imposition of punishment where there has been fraud or other misconduct
on his part.
Professor Fridman in his book Bankruptcy Law and Practice has given some
reasons for the growth of Bankruptcy. He says that the alleviation of the

plight of the debtor by a more merciful though rigorous provision of

Bankruptcy Law has several causes
(a)

The rise in importance of trading on credit and the need to encourage

such trading for commercial purposes thus increasing chances for financial
embarrassment for traders which would make trading more difficult if the
harshness of the older law of debt still remained in force;

(b)

The change in outlook of society towards those who fail to pay their debts
from regarding them as criminals to looking at them only as unfortunate;

(c)

The need to protect creditors by giving them some relief though not as
great as they are justly entitled to expect rather than punishing the debtor;

(d)

The benefit to the community as a whole in that

(i)

The creditors should get something rather than lose all if the debtor could
escape with the assets he has or is imprisoned so as to be unable to obtain
any assets in the future and

(ii)

In that an opportunity is afforded to the debtor to make a fresh start.

Professor Fridman thus asserts that the modern law of bankruptcy is a
compromise which is intended to benefit all the parties.
UNDERLINED PRINCIPLES (BASIC PRINCIPLES

1.

The Debtor must surrender all his properties to the creditors;

2.

After payment of a percentage of his liabilities, the debtor may obtain a full
discharge from his past debt;

3.

The creditors may grant a debtor a discharge even where the debtor pays
them less than what is prescribed by the law;

4.

The court is the arbitrator in all matters relating to the Bankruptcy;

5.

Once discharged, a debtor is freed from his financial obligations and

reverts to his former status in society.

BANKRUPTCY & SECURITIES Lecture II

PROCEEDINGS IN BANKRUPTCY
A summary
The proceedings in bankruptcy are begun by the presentation to the court
of a Bankruptcy Petition. This petition asks the court for a Receiving Order
to be made in respect of a debtors property. The petition may be presented
either by the Debtor himself or by a Creditor. If it is presented by a creditor
the petition must be founded or based on an alleged act of Bankruptcy
which has occurred within 3 months before the presentation of the petition.
Indeed the acts of Bankruptcy are in effect statutory tests of insolvency.
If it is the debtor himself who presents the petition that in itself constitutes
an act of bankruptcy. Upon hearing the petition the court may dismiss it, if
it has no merit or make a receiving order if it is found to be with merit. This
order does not make the debtor bankrupt all it does is to place his property
in safe custody pending the outcome of the proceedings.
The first meeting of creditors is then held at which it is determined whether
a composition or scheme of arrangement if one is submitted by the debtor
shall be accepted or whether application shall be made to the court to
adjudicate the debtor bankruptcy.

If the court decides to adjudicate the

debtor bankrupt it makes an Adjudication Order and the debtor will then
become bankrupt.

The debtors property will then vest in his trustee in

bankruptcy who will collect in the property and distribute it among those
creditors who have proved their debts.

The bankrupt must also submit himself to a Judicial Public Examination and
at any time after conclusion of this public examination the bankrupt can
apply for his Discharge.
If the court makes an order of discharge the bankrupt is released from all
his debts with certain exceptions provable in bankruptcy and is freed from
disabilities against some exceptions which were imposed upon him by the
bankruptcy.
WHO IS A CREDITOR & WHO IS A DEBTOR
A creditor is any person who is entitled to enforce payment of a debt at law
or equity. The Bankruptcy Act (BA) Section 3(2) defines who a debtor is. It
states that a debtor includes any person whether domiciled in Kenya or not
who at the time when any act of Bankruptcy was done or suffered by him
(a)

Was personally present in Kenya; or

(b)

Ordinarily resided or had a place of residence in Kenya; or

(c)

Was carrying on business in Kenya personally or by means of an agent or

manager or

(d)

Was a member of a firm or partnership which carried on business in Kenya

and includes a person against whom bankruptcy proceedings have been
instituted in a reciprocating territory and who has property in Kenya
WHO MAY BE ADJUDGED BANKRUPT
1.

In relation to Infants

Generally apart from contracts for necessaries infants are not liable in
respect of debts that they have incurred.

Re Davenport [1913] 2 All E.R. 850

Re A Debtor [1950] Ch. 282
But if an infant fraudulently contracts a debt during his infancy he will be
held liable for the debt and the creditor may claim in bankruptcy on his
acquiring the age of majority.

This is as per the Infants Relief Act of

England 1874 which is a statute of general application to Kenya.

2.

Insane Persons

These are also subject to bankruptcy proceedings.

Generally persons of

unsound mind cannot be adjudicated bankrupt without the courts consent.

Refer to the Bankruptcy Rule 247.
3.

Married Women

Section 117 of the BA provides that every married woman shall be subject
to the law relating to bankruptcy as if she were feme sole.
4.

Aliens & Persons Domiciled Abroad

They are also subject to bankruptcy proceedings as of Section 6(1) (d) of the
B A if within a year before the date of presentation of the petition has
ordinarily resided or had a dwelling house or place of business or has
carried on business in Kenya personally or by means of an agent or
manager or is or within that period has been a member of a firm or
partnership of persons which has carried on business in Kenya by means of
a partner or partners or an agent or manager.
5.

Companies/Corporations

Here bankruptcy proceedings are not applicable to companies. These are

dealt with under liquidation and winding up provisions of the Companies
Act Cap 486. Section 118 of the BA provides that a Receiving Order shall
not be made against any corporation or against any association or company
registered under the Companies Act or any enactment repealed by that
Act. The position in England has been reformed by the Insolvency Act.
6.

Partnerships

Whether the partnership is general or limited, it is subject to the provisions

of the Bankruptcy Act.

Section 119 thereof states as follows subject to

such modifications as may be made by rules under Section 122 this Act shall
apply to limited partnerships in the same manner as if limited partnerships
were ordinary partnerships and on all the general partners of a limited
partnership. Being adjudged bankrupt the assets of the limited partnership
shall vest in the Trustee in Bankruptcy.
7.

Deceased Persons

There is a provision for administration in bankruptcy of the estate of a

deceased person under Section 121 (1) of the BA.

Section 107 BA also

enables proceedings already commenced to continue as if the debtor were

alive. Where the debtor is dead a petition may be presented by his personal
representative when its purpose is to obtain an administration order.
8.

Judgment Debtor

The BA does not prevent an undischarged bankrupt from creating valid

debts and since he may commit an act of bankruptcy, institution of

subsequent bankruptcy proceedings before he is discharged from a prior

bankruptcy is permissible.
THE ACTS OF BANKRUPTCY
These are basically covered under Section 3(1) BA. A debtor commits an
act of bankruptcy in each of the following cases:1.

Conveying or assigning all property to a Trustee for the benefit of his

creditors generally; Section 3(1) (a) provides that if in Kenya or elsewhere a
debtor makes a conveyance or assignment of his property to a trustee or
trustees for the benefit of his creditors generally, he commits an act of
bankruptcy.

To constitute an act of Bankruptcy hearing there must be a

conveyance or an assignment or the whole or substantially the whole of the

debtors property.

Refer to Re Spackman (1890) 24 QBD 128. The

assignment must be for the benefit of all creditors generally and not just a
class.

Refer to Re Meghji Nathoo (1960) E.A. 560

A creditor who has

recognised a Deed of Arrangement wherein a debtor has agreed on a plan

of repaying the debt cannot rely on that Deed as an act of bankruptcy.
Refer to Re A Debtor (1939) 2 All E.R. 338
2.

Fraudulent Conveyance provided for under Section 3(1)(b) of the BA this

second act of bankruptcy is that if a debtor makes a fraudulent conveyance
gift delivering or transfer of his property or any part thereof. Under the BA
a conveyance is fraudulent if it confers on one creditor an advantage which
he would not have under the Bankruptcy Laws or which tends to defeat or
delay creditors irrespective of whether the debtor had any dishonest
intention although this may be present.

The transaction may be a

conveyance, gift, delivery or transfer of property and this includes

mortgages or pledges as well as actual conveyances and assignments. The
conveyance need not be for the benefit of any creditor and such transfers

are frequently made for example to a member of the debtors family. The
conveyance need not be of the whole of the debtors property.
BANKRUPTCY & SECURITIES Lecture 3
Fraudulent Conveyance:
The principles for determining whether a conveyance is fraudulent under
the Bankruptcy Act may be summarised as follows: 1.

Where a debtor transfers all or virtually his assets in payment of an

antecedent debt without receiving any present return for them this
necessarily defeats or delays his other creditors and is a fraudulent
conveyance even when the transaction is honestly entered into;

2.

Where a debtor transfers all his assets for a full present consideration this
is not per se a fraudulent conveyance since the effect is merely to change
the nature of the property to which the creditor look for satisfaction but a
fraudulent intent for example to abscond with the proceeds of the sale could
be proved if it is in fact existed or it might shown that that so called sale
was a sham designed to turn a creditor from an unsecured into a secured
creditor at the expense of other creditors and in this latter case that will be
fraudulent.

3.

Where a debtor transfers part of his assets in payment of an antecedent

debt, the fraudulent intent must be proved and this will depend upon
whether or not there is sufficient property remaining after the transfer to
enable the debtor to continue in business and thus satisfy his other
creditors. Secondly this will depend upon whether the debtor is insolvent
or not at the time and lastly it will depend upon whether or not the
conveyance has the effect of leaving his insolvent.

4.

Where a debtor mortgages or otherwise charges all his property to secure

an antecedent debt, this is conclusively presumed fraudulent as against the
other creditors.

3.

FRAUDULENT PREFERENCE:

Section 3 (1) (c) of the BA as read with Section 49(1).

If in Kenya or

elsewhere he makes any conveyance or transfer of his property or any part

thereof or creates any charge thereon which would under the BA or any
other Act be void as a fraudulent preference if you are adjudged bankrupt,
this constitutes an act of Bankruptcy and basically under Section 49(1) it is
provided as follows:
Every conveyance or transfer of property or charge thereon made, every
payment made, every obligation incurred and every proceeding taken or
suffered by any person unable to pay his debts as they become due from his
money in favour of any creditor with a view of giving such creditor
guarantor for the debt due to such a creditor a preference over the other
creditors is deemed to be fraudulent and is void as against the trustee in
bankruptcy if the person effecting the transaction is adjudged bankrupt on a
petition presented within 6 months after the date of the transaction.
4.

LEAVING KENYA, KEEPING HOUSE & SIMILAR ACTS

BA Section 3(1) (d) is yet another act of bankruptcy.

Here if a debtor

departs from Kenya or if out of Kenya remaining outside Kenya or departing

from a dwelling house or otherwise absenting himself or beginning to keep
house is constituted as an act of bankruptcy.

In order to establish this act of bankruptcy the creditor must prove that it
was the debtors intention to defeat or delay his creditors but it is not
necessary to show that any creditor was actually defeated. The intent may
be presumed if it is a natural consequence of the debtors act that the
creditors will be defeated or delayed. Refer to the case of Re Cohen (19500
2 All ER 36
This act of bankruptcy has 3 limbs
a. Departing from or remaining out of Kenya, where a person domiciled

in Kenya leaves the country after being pressed for payment by his
creditors, there is a strong presumption that his intention is to defeat
creditors.

However, this is not so if he has a permanent residence

abroad at which he remains or if a person domiciled abroad leaves

Kenya to return to the country of his domicil.

Refer to Ex part

Brandon (1884) 25 Ch. D 500

The second limb of bankruptcy is departing from a dwelling house or

otherwise absenting himself. Here the absenting must be from the debtors
place of business or usual aboard or from one of more particular creditors
elsewhere. It is an act of bankruptcy under this head if a debtor having
made an appointment to meet a creditor at a particular place fails to attend
to the appointment with intent to defeat it. Refer to the case of Re Worsley
(1901) K.B. 309 here where a married woman left her place of business
without paying her creditors or notifying her change of address, this was
held to be an act of bankruptcy although she left at her husbands request
to live with him elsewhere.
3rd Limb

b. Beginning to keep house _ a debtor keeps house if he refused to allow

his creditors to see him or retires to some remote part of his house or
business premises where they cannot gain access to him. It must be
shown that some creditor has been denied an interview in this way
but the creditor must seek the debtor at a reasonable hour.

5.

LEVYING EXECUTION AGAINST GOODS

Section 3(1)(e) of the Bankruptcy Act, where a judgment against a debtor

remains unsatisfied, the judgment creditor will usually seek to enforce it by
levying execution on the debtors goods.

This will constitute an act of

bankruptcy available to any other creditor if the goods are sold by the
Bailiff or retained by them for 21 days excluding the date of seizure. The
petition founded on this act must be presented within 3 months thereof .
Refer to the case of Re Beeston (1899) 1 QB 626.

The Bailiff is in

possession for the purpose of this section where under a walking

possession

agreement

he

withdraws

his

officer

upon

the

debtors

acknowledging that the goods have been seized and allows the debtor to
continue normal trading in the goods provided that a limit is imposed on the
value of the goods which can be dealt with in this way by the debtor. Refer
to the case of Re Dalton (1963) Ch. 336.

EXECUTION AGAINST GOODS.

If a 3rd party makes a claim to any of the goods seized, the bailiff must take
out an inter pleader summons to determine the ownership of the goods.
The period occupied in dealing with these summons is not to be counted in
the 21 days.

6.

DECLARATION OF INABILITY TO PAY DEBTS

B A Section 3 (1) (f) as read with Bankruptcy Rules 98.

Here a formal

declaration by the debtor that he is unable to pay his debts or a bankruptcy

petition presented against himself the latter being the most common
constitutes an act of bankruptcy upon delivery of the document to the
proper official of the court. A declaration of inability to pay debt is required
to be in Form No. 2 of the Bankruptcy Rules while a debtors petition is
required to be in Form No. 3 of the Bankruptcy Rules.
7.

BANKRUPTCY NOTICE

Section 4 as read with Section 3(1) g of the BA. Here if the debtor fails to
comply with the provisions of a bankruptcy notice, within 7 days, he
commits an act of bankruptcy. A bankruptcy notice is a notice issued by
the court and served on the judgment debtor calling upon the debtor to pay
the amount of the judgment debt or else satisfy the court that he has a
counter-claim set-off or cross-demand which equals or exceeds the amount
of the judgment debt and which the debtor could not set up in the action in
which the judgment was obtained. A bankruptcy notice must be preceded
by a request of issue of the notice and this is in Form No. 4 of the
Bankruptcy Rules.
A bankruptcy notice must be in the prescribed form and must state the
consequences of non-compliance. It can only be issued at the instance of a
creditor who has obtained a final judgment in a Kenyan court or foreign
court where there is reciprocity.

The prescribed form of a a bankruptcy

notice is Form No. 5 under the Bankruptcy Rules. The period of 7 days for
compliance applies where the notice is served in Kenya. If served abroad
the court will fix the time for payment in order to give leave to serve it
abroad. The notice must require payment to be made in exact accordance

with the terms of the judgment. Therefore if by agreement with a creditor

payment is to be made by instalments, a notice cannot issue on the failure
to pay one instalment for the whole of the unpaid balance unless it was
provided but the whole balance should become due on failure to pay any
instalment. If a portion of the judgment debt has been paid, there not being
any agreement to take payment by instalments, the bankruptcy notice must
issue for the balance unpaid and not for the whole depth.
But a bankruptcy notice will not be invalidated by reason only that the sums
specified in the notice as the amount due exceeds the amount actually due
unless the debtor within the time allowed for payment gives notice to the
creditor that he disputes the validity of the notice on the ground of such
misstatement. If the debtor does not give such notice he is deemed to have
complied with the bankruptcy notice if within the time allowed he takes
such steps as would have constituted a compliance with the notice had the
actual amount due been correctly specified therein. It should be noted that
two separate judgment debts cannot be included in one notice.
A bankruptcy notice cannot be issued if execution on the judgment has been
stayed. The debtor after service of the notice may seek to have it set aside
if he has a counter-claim, set-off or cross-demand which equals or exceeds
the amount of the judgment debt and which he could not have set up in the
action on which the judgment was obtained or for any other reasons. If the
debtor does not successfully challenge the notice and does not pay the debt
or provide satisfactory security for it within the specified time he commits
an act of bankruptcy which is available not only to the creditors issuing the
notice but to any other creditor provided that he obtains an affidavit of noncompliance from the creditor issuing the notice.
8.

GIVING

NOTICE

TO

CREDITORS

INTENTION TO SUSPEND DEBTS

OF

SUSPENSION

OR

Section 3(1) (h) BA. Here a statement by a debtor that he has suspended or
is about to suspend payment of his debts needs no particular formality but
the notice must be given in such a manner as to show that his intention was
to give information that he has suspended all those about to suspend
payment. That will constitute an act of bankruptcy for example notice of
Suspension has been inferred where a trader summoned a meeting of his
creditors with a view to proposing a composition.
Refer to the case of Crook V. Morley [1891] A.C. 316.

It has also been

inferred where a debtor made a verbal statement to the managing clerk of

the solicitors acting on behalf of his creditors that he was unable to pay his
debts.
Re a debtor [1929] 1 Ch. 362. A notice given without prejudice has been
held to be admissible as proof of the acts of bankruptcy.

In Re Daintrey

[1893] 2 Q.B. 116.

Bankruptcy

&

Commercial

Securities-Lecture 6
The First Meeting of Creditors
It is provided under

section 14 and 15 of the BA as read with the

first schedule to the BA. As soon as may be after the making of the receiving
order against a debtor a general meeting of his creditors referred to as the
first meeting shall be held for the purpose of considering whether a
proposal for a composition or scheme of arrangement shall be accepted or

whether it is expedient that the debtor shall be adjudged bankrupt and

generally as to the mode of dealing with a debtors property with respect to
the summoning of and proceedings at the first and other meetings of
creditors the rules in the first schedule to the BA apply.
The official receiver must summon the first meeting of creditors not latter
than 60 days after the date of the receiving order. He must give not less
than 6 clear days notice of the time and place in the Kenya Gazette and in a
local daily paper. Furthermore he must send a note to each creditor
mentioned in the statement of affairs. Together with this notice he must also
send a summary of the statement of affairs with comments which he may
wish to make as well as a form of proxy if a composition or scheme of
arrangement is to be considered at the meeting he must send a copy of the
scheme and his remarks thereof. Notice must also be sent to the debtor to
attend the meeting.
The official receiver or his nominee shares the meeting. All creditors may
attend but a creditor who has not previously lodged approval of his debt
may not vote at the meeting. The purpose of the meeting is to decide
whether the debtor should be adjudged bankrupt or whether any
composition or scheme which he may have submitted should be accepted
and in the former case the creditors may appoint a trustee and a committee
of inspection.

Composition or scheme of arrangement

This is provided for under section 18 BA and BR 160-169. A composition is
an arrangement between

two or more persons for the payment of one to

the others of a sum of money in satisfaction of an obligation to pay another

sum differing either in amount or mode of payment.

A scheme of arrangement is a proposal of dealing with his debts by an

insolvent debtor by applying his assets or income in proportionate payment
of them which proposal if agreed by his creditors or the requisite majority
of them. Therefore the scheme or composition is on the debtors initiative. If
the debtor wishes to make a proposal for a composition or for a scheme of
arrangement of his affairs the provisions of section 18 BA come into
operation:
1.

He must lodge his proposal with an official receiver within 4 days of

submitting his statement of affairs or within such further time as the official
receiver may allow. The proposal must be in writing and signed by the
debtor.

2.

The official receiver must summon a meeting of creditors before the public
examination of the debtor is concluded and send to its creditors before the
meeting a copy of the debtors proposal with his report attached thereto.

3.

The proposal must be approved by a majority in number and three-quarters

in value of all the creditors who have proved their debts. Creditors may vote
by letter in the subscribed form to the official receiver so as to be received
by him not later than the day preceding the meeting. Creditors who do not
vote are regarded as voting against the resolution.

4.

The debtor may at the meeting amend the terms of his proposal if the
amendment is in the opinion of the official receiver calculated to benefit the
general body of creditors.

5.

After the proposal is accepted by the creditors it must be approved by the

court. Either the debtor or the official receiver may apply to the court to
approve it and three days notice of the time appoint for hearing the
application must be given to each creditor who has proved his debts.

6.

The application cannot be heard until after the conclusion of the public
examination of the debtor. Before approving the proposal the court must
here the report of the official receiver as to its terms and as to the conduct

of the debtor and any objections which may be made by or on behalf of any
creditor. A creditor may oppose the application not withstanding that he
voted for its acceptance at the meeting of creditors.
7.

The court must refuse to approve the proposal if in its opinion the terms of
the proposal are unreasonable or not for the benefit of the general body of
creditors.

8.

In any other case, the court may either approve or refuse to approve the
propose.

9.

Once a composition or scheme is approved by the court it is binding on all

creditors whose debt are proved with the exception unless the creditor
accepts the proposal of those debts from which the debtor will not be
released by an order of discharge.

10. If the scheme is approved the receiving order is rescinded and subject to
payment of the official receivers costs, the debt or the trustee under the
scheme is put in possession of the property.

11.

The scheme may be annulled in the

following cases:
(i)

if default is made in payments of any instalments due

under the scheme; or

(ii)

if it appears to the court that the scheme cannot in

consequence of legal difficulties or for any sufficient
cause proceed without injustice or undue delay to the
creditors or the debtor; or

(iii)

if the consent of the court was obtained by fraud.

If the scheme is annulled the court may adjudge the debtor bankrupt but
any dispositions or payments made under the scheme remain valid.

The creditors may also accept a proposal for a composition or scheme at

any time after adjudication. The procedure is the same as in the case of a
composition or scheme accepted before adjudication and upon approving
the scheme the court may annul the adjudication order. Where the
adjudication is annulled any assets remaining after payments to the
creditors of the amount owed them under the scheme in respect of which no
order has been made reverts in the debtor.

Public Examination of the Debtor

Section 17 Bankruptcy Act as read with BR 151-159. Where a receiving
order has been made the official receiver applies to the court for the
appointment of a time and place for the public examination of the debtor.
The examination must be held as soon as is convenient after the expiration
of the time for the submission of the debtors statement of affairs. The court
may adjourn it from time to time.
The official receiver must notify the debtor and creditors of the time and
place of the examination and must advertise the order in the Kenya Gazette
and in a local daily papers. The public examination may be dispensed with
under the provisions of section 17n(11) BA. If the debtor fails without
sufficient cause to attend the examination the court may issue a warrant for
his arrest. In this case and also if the debtor fails to disclose his affairs or
comply with an order of court in relation to his affairs the court may adjourn
the examination sine die. It may then adjudge the debtor bankrupt forthwith
and he will be unable to obtain discharge until he can obtain an order of the
court for the examination to be continued. Any creditor who has lodged
proof of his debt or his representative authorized in writing may put
questions to the debtor concerning his affairs and causes of his failure.

The official receiver or trustee if one has been appointed and the court take
part in the examination and put questions to the debtor. The debtors
advocate may also attend the examination but not ask any questions or
address the court. The debtor is examined on oath and must answer all
questions which the court may put or allow to be put to him. Notes of the
examination are taken down in writing and after being read over to or by
the debtor and signed by him may be used in evidence against him in other
proceedings. These notes are open to the examination by the creditors at
all reasonable times.
When the court is of the opinion that the affairs of the debtor have been
sufficiently investigated it makes an order declaring that the examination is
concluded but the order cannot be made until after the day appointed for
the first meeting of creditors.

The power to arrest the debtor

Under section 26 BA the court may order the arrest of the debtor and the
seizure of any books, papers or goods in his possession in the following
circumstances:

1.

If after a bankruptcy notice has been issued or after a petition has been
presented by or against him, there is a probably reason for believing that he

has absconded or is about to abscond with a view to

avoiding payment of the debt in respect of which the
bankruptcy notice was issued or avoiding service of a
bankruptcy petition or attending an examination or

otherwise delaying or embarrassing the proceedings

against him
2.

The debtor may also be arrested

if after presentation of a

petition by or against him there is cause to believe that

he is about to remove his goods with a view of prevent or
delaying possession being taken of them by the official
receiver or trustee or that there is ground for believing
that he has concealed or he is about to conceal or
destroy any of his goods or any books, documents or
writings which might be of use to his creditors
3.

If after service of a petition or the making of a receiving order

he

removes any goods in his possession above the value of

five pounds without the leave of the official receiver or
trustee
4.

if without good cause shown

he fails to attend any examination

ordered by the court.

It should be noted that no arrest is valid upon a bankruptcy notice unless
the notice is servable upon the debtor before or at the time of his arrest.
BANKRUPTCY & SECURITIES Lecture IV

PROCEDURE OF ADJUDICATION

A. The Petition:
As noted earlier bankruptcy proceedings are begun by the presentation of a
petition by the debtor himself or by a creditor against the debtor. This is in
accordance with the provisions of Section 5 of the BA.

Petition of Debtor against himself:

Under

Section

8(1)

of

the

Bankruptcy

Act

and

Bankruptcy Rules 105 a debtor may present his own petition.

1.

The filing of which is deemed to be an act of

bankruptcy.
2. The petition must state that the debtor is unable to pay
his debt and must request that a receiving order or an
adjudication order be made.
3. A receiving order is made at once without any hearing
in accordance with BR 125. An adjudication order may
also be made at once.
4.
The debtor must file with the official receiver a
statement of affairs prepared in accordance with the
provisions of Section 16 of the BA.
5. The petition must further comply with the provisions of
BR 106 to 108.
A debtors petition shall not after
presentation be withdrawn without leave of the court.
2. Creditors Petition
Any person entitled to enforce payment of a debt at law or equity may be a
petitioning creditor. A creditor may petition if the following conditions are
satisfied:

1.

Pursuant to Section 106 Bankruptcy Act and Bankruptcy Rules

110
(a)

The amount owed is not less than 50 pounds or Kshs. 1000 as fixed
under the English Bankruptcy Act of 1914;

(b)

The debt is a liquidated sum payable either immediately or at some

certain future time;

(c)

The act of bankruptcy on which the petition is grounded has

occurred within 3 months before the presentation of the petition;

(d)

The debtor is domiciled in Kenya or within a year before the date of

the presentation or the petition has ordinarily resided or other
dwelling house or a place of business in Kenya or has carried on
business in Kenya personally or by means of an agent or manager or
is or within that period has been a member of a firm or partnership
of persons which has carried on business in Kenya by means of a
partner or partners or an agent or manager.
The debt due to the petitioning creditor must have existed as a liquidated
sum i.e. a fixed sum or one capable of being computed with certainty at the
date of the act of bankruptcy. It is not sufficient that the debt should have
become liquidated at the date of presentation of the petition if it had in fact
been un-liquidated at the earlier debt. Refer to Re Debtors [1927] 1. Ch. 19
and Mohammed V. Lobo [1953] EACA 117.

2.

The Hearing of the Petition:

Bankruptcy Rules

Under BR 125 where a petition is filed by a debtor the court shall forthwith
make a receiving order thereof.
1. The hearing of a creditors petition takes place after the expiration of
8 days from the date of service thereof on the debtor.
2. But a hearing within the 8 days may be ordered, where the debtor has
filed a declaration of inability to pay his debts or where the debtor has
absconded or for any good cause shown.

OPPOSITION BY THE DEBTOR.

Under BR 128 if the debtor wishes to oppose the petition he must file a
notice with the registrar of the court specifying the statements in the
petition which he denies. Further he must also send a copy of the notice to
the petitioning creditor 3 days prior to the date of the hearing.

At the hearing set by the registrar under

BR 126

the petitioning

creditor must prove:

1. The debt.
2. Service of the petition on the debtor.
3. The act of bankruptcy being relied on
Thereupon the court may make a receiving order as per section 5 BA for the
protection of the Estate.

DISMISSAL OF THE PETITION

1. If the court is not satisfied with prove of any of these matters or is
satisfied by the debtor that he is able to pay his debt or that for

other sufficient cause no order ought to be made it may dismiss the

petition under Section 7 (3) of the BA.
2. If the Act of bankruptcy which is being relied upon is non-compliant
with a bankruptcy notice the court may if it thinks fit stay or dismiss the
petition if an appeal is pending from the judgment or order. Section 7(4) as
read with 7(5) BA.
The court may also stay all proceedings on the petition if the debtor denies
indebtness to the petitioner or the amount of the debt until that has been
determined. Where proceedings are stayed the court may if by reason of
the delay caused by the stay of proceedings or for any other cause it thinks
just make a receiving order on the petition of some other creditor and shall
thereupon dismiss on such terms as it thinks fit the petition in which
proceedings have been stayed.

creditor

cannot

rely

upon

an

act

of

bankruptcy

committed before his debt came into existence but the debt
need not have been due to the petitioning creditor at the date of the act of
bankruptcy. A petition once presented cannot be withdrawn without leave
of the court.

3.

Appointment of Interim Receiver:

BA Section 10.
At any time after the presentation of the petition and before a receiving
order is made the court may if it is shown to be necessary for the protection
of the estate appoint the official receiver to be interim receiver of the
property.

The official receiver may himself appoint a special manager to

conduct the business of the debtor.

The court may also stay any action

execution or other legal process against the property or person of the

debtor. Refer to BR 119 TO 124.

4.

The Receiving Order:

Section 9 of the BA as read with BR 138 to 148.

If the court does not dismiss or stay the petition, it will make a receiving
order. Upon the making of the receiving order the official receiver becomes
receiver of the debtors property. Thereafter no legal proceedings may be
brought or the debt provable in the bankruptcy except by leave of the court.
Once the official receiver steps in no proceedings can be brought against
the debtor except with the leave of the court.

This however does not

prejudice a secured creditors rights to deal with his security according

Section 9(2) as read with Section 6(2) BA.
The receiving order does not make the debtor bankrupt nor does it deprive
him of the ownership of his property. It is only the possession and control
of his property that are taken away from him.

Thus any transactions

subsequently entered into by the debtor are prima facie invalid whether or
not the other party to the transaction has notice of the receiving order.
The notice of the receiving order stating the name address and description
of the debtor, the date of the order, the courts by which the order was made
and the date of the petition must be published in the Kenya Gazette and one
of the local daily papers.

Section 13 of the BA as read BR 145.

The

production of a copy of the Gazette containing any notice of the receiving

order is conclusive evidence that the order was duly made on the stated
date. Even after the making of the receiving order the debtor may apply for
its rescission in accordance with BR 147 to 148.

Debtors Statement of Affairs:

Upon the making of a receiving order the debtor must attend a private
interview to determine how the Estate should be administered and to
receive instructions as to the preparation of his statement of affairs. The
debtor must submit his statement of affairs to the official receiver within 3
days of the receiving order if the order is made on the debtors own petition
or within 14 days or if the order is made on the creditors petition. It may
be extended by the court or official receiver on application of the debtor.

BA 16(1) BR 149 to 150. The statement of affairs must

be in the prescribed form verified by Affidavit and must
show the following:

(a)
(b)

The particulars of assets, debts and liabilities;

The names, residencies and occupations of the
creditors;

(c)

The securities if any held by them respectively and the

dates when they were given and

(d)

Such further or other information as may be prescribed

or as the official receiver may require.
Under Section 16(3) BA if the debtor fails without reasonable excuse to
comply with these requirements, the court may on the application of the
official receiver or of any creditor adjudge him bankrupt.
Any person stating himself in writing to be a creditor of the bankrupt may
personally or by agent inspect the statements of affairs at all reasonable

times and take a copy thereof. But if any person untruthfully states that he
is a creditor, then he shall be guilty of contempt of court and be punished
accordingly on the application of the trustee in bankruptcy or the official
receiver.
Bankruptcy & Commercial Securities Lecture 7
THE ADJUDICATION ORDER
Reference may be made to the BA Section 20 and BR 180 185.
The grounds for Making an Adjudication Order
When a receiving order has been made the official receiver or any creditor
may apply to the court to adjudge the debtor bankrupt.

The court may adjudge the debtor bankrupt in the

following cases:
1.

If the creditors at their first meeting or at any adjournment

thereof so resolve by ordinary resolution;

2.

If they pass no resolution;

3.

If they do not meet at all;

4.

If a composition or scheme is not approved within 14 days after

the conclusion of the public examination of the debtor or such
further time as the court may allow;

5.

If the debtor applies to be made Bankrupt;

6.

If a quorum of creditors has not attended the first meeting of

creditors or one adjournment thereof;

7.

If the court is satisfied that the debtor has absconded or does

not intend to propose a composition or scheme;

8.
9.

If the public examination is adjourned sine die;

If the debtor without reasonable cause fails to submit his
statement of affairs;

10.

If a composition of scheme is annulled by the court.

Upon the making of an adjudication order, notice thereof must be gazetted
and advertised in a local paper.

Annulment of the Adjudication Order:

The adjudication order may be annulled in the following cases:

1.
2.
3.

If in the opinion of the court the debtor ought not to have been
adjudged bankrupt;
If his debts are paid in full;
If a composition or scheme is accepted by the creditors and
approved by the court;
The court has a discretion as to annulling the adjudication order and may do
so where the bankrupt has committed bankruptcy offences even if the debts
are paid in full. Here a voluntarily lease by a creditor is not equivalent to
payment in full by the debtor.
Under Section 33(b) any debts disputed by the debtor is considered as paid
in full if he enters into a bond in such sum and with such sureties as the
court approves to pay the amount to be recovered in any proceedings for its
recovery with costs. Also any debts due to a creditor who cannot be found

or cannot be identified is considered as paid in full if paid into court.

it

should be noted that the annulment of an adjudication does not affect the
validity of any sales or dispositions of property or other acts properly done
by the official receiver, trustee or any person acting under their authority or
by the court.
The annulment of an adjudication order releases the debtor from the
personal disabilities imposed upon him by the bankruptcy but does not
prevent

criminal

proceedings

from

being

brought

against

him

for

subject

to

following

Bankruptcy offences.

DISABILITIES OF A BANKRUPT
Upon

adjudication

the

bankrupt

becomes

the

disabilities:

1.

All property belonging to him including property

acquired by him prior to his discharge vests in the
trustee in Bankruptcy for distribution among his
creditors;

2.

He must not either alone or jointly with any other

person obtain credit to the extent of 10 pounds or
upwards from any person without informing that person
that he is an undischarged bankrupt; Section 139 (a)
BA;

3.

He must not engage in any trade or business under a

name other than that under which he was adjudicated
bankrupt without disclosing to all persons with whom he
enters into any business transactions the name under
which he was adjudicated Section 139 (b) of the BA;

4.

Under Section 188 of the Companies Act he cannot act

as a director of a company or directly or indirectly take
part in the management of a company except by leave of
the court by which he was adjudged bankrupt;

5.

He cannot act as a receiver or manager of the property

of a company on behalf of the debenture holders except
under appointment made by order of the court;

6.

Under Section 35 (1) (d) of the current Constitution a

bankrupt is disqualified from being a member of
parliament or a member of a local authority if elected he
will have to relinquish his seat;

7.

He cannot act as an advocate under Section 32 of the

Advocates Act Cap 16 of the Laws of Kenya.

DISCHARGE OF A BANKRUPT
Application for Discharge:

Section 129 and BR 186 to 197.

The Bankrupt can apply for his discharge at any time after adjudication

but the application cannot be heard until after the public

examination is concluded.
The registrar of the court must give 28 days notice of
the time and place of the Hearing to the official receiver
and the Trustee.

The official receiver must forthwith send notice

thereof for gazetting and must give 14 days notice
or the Hearing to every creditor.

At the hearing of the application which is held in open court

the

official

the

receiver

submits

report

as

to

bankrupts conduct during the proceedings of his

bankruptcy.

A copy of this report must be forwarded to the

bankrupt not less than 7 days before the hearing

and

if the bankrupt wishes to dispute any statement therein, he must

notify the official receiver of this fact not less than 2 days before the
hearing.

A creditor who wishes to oppose the discharge on any ground other than
those mentioned in the official receivers report must not less than two days
before the hearing file in the court a written notice of his intended
opposition stating the grounds thereof and serve a copy on the official
receiver and the bankrupt.

Courses Available to the Court:

At the Hearing the court may do any of the following things:

1. Grant an absolute and immediate discharge;

2. Refuse the discharge;
3. Grant an order of discharge subject to conditions with respect
to any earnings or income which may afterwards become due to
the bankrupt or with respect to his after-acquired property;
The court will normally only grant an unconditional absolute
discharge

where

the

bankrupt

is

entitled

to

certificate

of

misfortune i.e. a certificate of the court to the effect that the bankruptcy
was brought about by causes beyond the debtors control without any
misconduct on his part.

This has the effect of releasing the debtor from

those statutory disqualifications which will otherwise attach to him after

discharge.

There are no cases in which the court is bound to refuse a

discharge but it cannot grant an immediate and conditional discharge.

Where the bankrupt has been convicted of any offence connected with his
bankruptcy or where any of the following facts have been proved against
him:
These facts as contained in Section 30 BA
(a)

That his assets are not of a value equal to 10 shillings in the pound on the
amount of his unsecured liabilities unless this is due to circumstances for
which he cannot justly be held responsible;

(b)

That he has omitted to keep such books of accounts as are usual and
proper in the business carried on by him within 3 years immediately
preceding his bankruptcy;

(c)

That he has continued to trade after knowing himself to be insolvent;

(d)

That he has contracted any debt provable in the bankruptcy without

having at the time of contracting any reasonable or probable expectation of
being able to pay it;

(e)

That he has failed to account satisfactorily for any loss of assets or for any
deficiency of assets to meet his liabilities;

(f)

That he has brought on or contributed to his bankruptcy by rash and

hazardous speculations or by unjustifiable extravagance in living or by
gambling or by neglect of his business affairs;

(g)

That he has put any of his creditors to unnecessary expense by frivolous or

vexatious defence to any action properly brought against him;

(h)

That he has brought on or contributed to his bankruptcy by incurring

unjustifiable expense in bringing a frivolous or vexatious action;

(i)

That he has within 3 months preceding the date of the receiving order
when unable to pay his debts as they became due given undue preference to
any of his creditors;

(j)

That he has within 3 months preceding the date of the receiving order
incurred liabilities with a view to making his assets equal to 10 shillings in
the pound on the amount of his unsecured liabilities;

(k)

That he has on any previous occasion been adjudged bankrupt or made a

composition or arrangement with his creditors; and

(l)

That he has been guilty of any fraud or fraudulent breach of trust.

Where any such facts or offences are proved the court may either

(i)

Refuse the discharge or;

(ii)

Suspend the discharge for such period as it thinks fit; or

(iii)

Suspend the discharge until a dividend of not less than 10 shillings in the
pound has been paid to the creditors; or

(iv)

Grant a discharge subject to the condition that the bankrupt consents to a

judgment being entered against him for any balance or part of any balance
of the debts still remaining unpaid to be discharge out of his future earnings
or after acquired property.
The court has a similar power where the BANKRUPT has made a settlement
of property before and in consideration of marriage at a time when he was
unable to pay his debts without the aid of such settled property or has
contracted in consideration of marriage to settle on his wife or children
property to be subsequently acquired by him and it appears to the court
that the settlement or contract was made in order to defeat or delay
creditors or was unjustifiable having regard to the state of affairs at the
time it was made. ( this is called a fraudulent settlement within the context
of Section 30 of BA)
Where a bankrupt is discharged unconditionally, it is his duty until the
judgment or condition is satisfied to give the official receiver any
information he may require about his earnings or after acquired property
and to file in court an annual statement verified by affidavit giving
particulars of any property or income acquired since discharge.
At any time after the expiration of 2 years from the date of the order, the
terms and conditions of that order may be varied by the court if the
bankrupt can satisfy the court that there is no reasonable probability of his
being in a position to comply with them.

A discharge bankrupt

notwithstanding his discharge must continue to give the trustee any

assistance he may require in the realisation and distribution of the estate

and if he fails to do so, he is guilty of contempt of court. the court may also
revoke his discharge if it thinks fit but without prejudice to the validity of
any disposition of this property

which occurred after the discharge and

before its revocation.

Effect of Order of Discharge:
An order of discharge under Section 32 BA releases the bankrupt from all
debts provable in bankruptcy except the following:
1.

Debts due to the government for breach of a statute relating to any branch
of the public revenue or on a recognizance unless the Permanent Secretary
to the Treasury gives a written consent to his release therefrom;

2.

Debts incurred by fraud or fraudulent breach of trust;

3.

Any liability under a judgment against him in an action for seduction or

under an affiliation order or under a Judgment against him as a
correspondent in a matrimonial cause unless the court orders otherwise;
An order of discharge does not release any person who at the date of the
receiving order was a partner co-trustee or surety of the bankrupt.

The

order releases the bankrupt from all personal disabilities imposed upon him
as a result of the adjudication other than those which by statute continue to
apply for a fixed period after his discharge. He is only released from this if
he obtains a certificate of misfortune. The Order will not however free him
from any liability to be prosecuted for any bankruptcy offences which he
may have committed.
BANKRUPTCY OFFENCES:
BANKRUPTCY & COMMERCIAL SECURITIES LECTURE 12

Section 7 declares that certain provisions if contained in the Hire Purchase

Agreement will be absolutely void. These are:
1.

Any provisions that allow the owner of goods or his agent to enter the
Hirers premises to retake possession of the goods.

2.

Any provision that attempts to prevent the hirer from terminating the
agreement as provided for in Section 12 of the Act or

3.

Any provisions that adds extra liabilities should the hirer terminate the
agreement;

4.

Any provision that attempts to relieve the owner of goods from liabilities
for the default of these agents;
The section therefore stands out as an attempt to reduce the doctrine of
freedom of contract and to mitigate the harshness of the imposed standard
form contract.
REPOSSESSION & THE MINIMUM PAYMENT CLAUSE
Section 15 (1) of the HPA provides that where goods have been let under a
hire purchase agreement and two thirds of the hire purchase price has been
paid, the owner shall not enforce any right to recover possession of the
goods otherwise than by suit. If the owner contravenes this provision the
hirer is immediately released from liability under the Agreement.
Secondly the hiring terminates and the hirer can recover by suits all moneys
paid out by him. It has been argued that the Section gives the hirer some
protection although that protection is

half-hearted.

Professor Mutunga and Piciotto and Whitford and Mcneil

Mentioned by

Section 12 (1) allows the hirer to terminate the agreement by giving notice
in writing to the owner. If he does so, the minimum payment clause comes
into operation whereby he will have to pay upto 50% of the Hire Purchase
Price or less should the agreement so stipulate.
CONDITIONS & WARRANTIES
Conditions, Warranties and Exclusion Clauses:
The Hire Purchase Act imposes implied terms and restricts their exclusion.
Section 8 (1)(a) implies a condition that the owner will have a right to sell
the goods at the time when property is to pass.
Secondly 8(1) (b) implies a warranty that the hirer shall have and enjoy
quiet possession of the goods.
Thirdly Section 8(1)(c) implies a warranty that the goods will be free from
any charge or encumbrance in favour of a third party at the time when
property is to pass.
Under Section 8(1) (d) there is an implied condition that the goods are or
merchantable quality unless they are second hand goods and the agreement
says so.

Furthermore this implied condition is negatived in those cases

where the hirer has examined goods or a sample thereof and the
examination ought to have revealed the defect or where the owner could
not have reasonably detected the defect.
There is a further implied condition under Section 8(2) to the effect that the
goods are reasonably fit for their purpose where the hirer whether
expressly or by implication has made known the particular purpose for
which the goods are required.

It should be noted that the implied conditions as to sample and description

are not expressly stated in the Hire Purchase Act unlike in the Sale of Goods
Act where they are.

In fact Section 8(4) of the HPA refers back to the

English common Law where an implied term as to description is available to

hirers but it is not clearly so for the implied condition as to sample.
Finally it should be noted that Section 8(3) prohibits the parties from
contracting out of the implied conditions and warranties. This section thus
limits the use of exclusion clauses to exclude liability for defect in the goods
and thus stands out as a measure of consumer protection.
MISCELLANEOUS PROVISIONS
Part IV of the HPA deals with aspects relating to change of address and
removal of goods from premises. It also deals with removal of goods from
Kenya and it also deals with those situations where the court may allow
goods to be removed.
Part VII of the HPA deals with licensing of Hire Purchase businesses. In
order to operate one must have a licence.

Where the licence is refused

there are provisions for appeal to the minister and there is a provisions that
the licences if granted have to be displayed.
Other miscellaneous provisions are contained in Sections 24, through to 35
but these do not fundamentally alter the hirer purchase transactions.
OTHER SECURITIES
These are basically
1.

Guarantee

2.

Indemnity

3.

Bailment

4.

Pledge /Pawn

5.

Lien

6.

Letter of Hypothecation

7.

Mortgage/Charge

8.

Debentures

9.

Chattels Transfer Chattels Transfer Act Cap 28

Bankruptcy & Commercial Securities Lecture 8

30th July

2004
BANKRUPTCY OFFENCES:
Generally while the fact that a person has been adjudicated bankrupt does
not in itself give rise to any criminal liability, the bankrupt may be guilty of
one or more or the offences specified in the BA if he has misconducted
himself with regard to his affairs either before or during the currency of the
Bankruptcy.
There are various categories of offences the most elaborate ones are in the
first category
1.

miscellaneous offences;

this are quite lengthy ranging from a to t. under section 138 sub section 1
any person who has been adjudged bankrupt or in respect of whose estate a
receiving order has been made shall be guilty of an offence unless he proves
that he had no intent to defraud
(a)

If he does not to the best of his knowledge and belief fully and truly
disclose to the trustee or of his property and how and to whom and for what
consideration and when he disposed of any part thereof except such part as
has been disposed off in the ordinary way of his trade or laid out in the
ordinary expense of his family; non-disclosure

(b)

If he does not deliver up to the trustee or as he directs all or such part of

his property which is in his custody or under his control and which he is
required by law to deliver up, and this constitutes the offence of nondelivery of property

(c)

If he does not deliver up to the trustee or as he directs all books

documents papers and writings relating to his property or affairs this
constitutes the offence of non-delivery of books or documents

(d)

If after the presentation of a bankruptcy petition or within two years next

before presentation he conceals any part of his property to the value of
200/- or more or conceals any debts due to or from him this constitutes the
offence of concealment of property

(e)

If after presentation of a bankruptcy petition or within two years next

before presentation he fraudulently removes any part of his property to the
value of 200/- or more this constitutes offence of removal of property;

(f)

If he makes any material omission in any statement relating to his affairs,

this constitutes omission in statement of affairs;

(g)

If knowing or believing that a false debt has been proved by any person
under the Bankruptcy he fails within one month to inform the trustee this
constitutes not informing trustees of false claims;

(h)

If after presentation of a petition he prevents the production of any book

document paper or writing affecting or relating to his property or affairs
unless he proves that he had no intent to conceal the state of his affairs or
to defeat the law this is the offence of preventing production of books or
documents;

(i)

If after presentation of a petition or within two years next before

presentation he conceals destroys mutilates or falsifies or is privy to the
concealment, destruction, mutilation or falsification of any book or
document affecting or relating to his property or affairs unless he proves
that he had no intent to conceal the state of his affairs or to defeat the law,
this constitutes destruction of books or documents;

(j)

If after presentation of a bankruptcy petition or within two years next

before presentation he makes or is privy to the making or any false entry in
any book or document affecting or relating to his property or affairs unless
he proves that he had no intent to conceal the state of his affairs or to
defeat the law this constitutes the offence of false entry in books or
documents;

(k)

If after presentation of a bankruptcy petition or within two years next

before presentation he fraudulently parts with, alters or makes any
omission in or is privy to fraudulently parting with, altering or making any
omission in any document affecting or relating to his property or affairs, this
constitutes the offence of parting with or altering of documents;

(l)

If after presentation of a bankruptcy petition or at any meeting of his

creditors within two years next before presentation he attempts to account
for any part of his property by fictitious losses or expenses this constitutes
accounting for property by fictitious losses;

(m)

If within two years next before the presentation of a petition or after

presentation but before the making of a receding order he by any false
representation or other fraud has obtained any property on credit and not
paid for it, that is termed obtaining property on credit by fraud;

(n)

If within two years next before presentation of a petition or after

presentation but before the making of a receiving order he obtains under
the false pretence of carrying on business and if a trader or dealing with the
ordinary way of his trade any property on credit and does not pay for it this
constitutes obtaining property on credit on pretence of carrying on
business;

(o)

If within two years next before presentation of a petition or after the

presentation but before the making of a receiving order he pawns, pledges
or disposed of any property which he has obtained on credit and not paid
for it unless in the case of a trader the pawning pledging or disposing is in
the ordinary way of his trade and unless in any case he proves that he had
no intent to defraud that offence is termed pawning property obtained on
credit;

(p)

If he is guilty of any false representation or other fraud for the purpose of

obtaining the consent of his creditors or any of them to an agreement with
reference to his affairs or his bankruptcy this constitutes obtaining consent
of creditors by fraud;

(q)

If he makes default in payment for the benefit of creditors of any portion of

her salary or other income in respect of the payment of which the court is
authorised to make an order this constitutes default in payment;

(r)

If within one year immediately preceding the date of the making of the
receiving order he has continued to trade or carry on business after
knowing himself to be insolvent this constitutes trading when insolvent;

(s)

If within 6 months before the making of a receiving order he sells goods at

a price lower than cost unless he proves that he had no intention to defraud
his creditors this constitutes selling goods below cost price;

(t)

If he has contracted any debt provable in the bankruptcy without having at

the time of contracting it any reasonable or probable ground or expectation
or being able to pay it this constitutes miscellaneous offences.

2.

Fraud by the Bankrupt;

Section 140 sub section 1 states that any person who has been adjudged
bankrupt or in respect of whose estate a receiving order has been made is
guilty of an offence in the following 3 cases;
(a)

If in incurring any debt or liability he has obtained credit under any false
pretences or by means of any other fraud;

(b)

If with intent to fraud any of his creditor he has made or caused to be

made any gift or transfer or charge on his property;

(c)

If with intent to defraud his creditors he has concealed or removed any

part of his property since or within two months before the date of any
unsatisfied judgment or order for payment of money obtained against it.
3.

Obtaining Credit:

An undischarged bankrupt is guilty of an offence under Section 139(b) in

the following two cases:
(a)

If either alone or jointly with any other person obtains credit over a 100/or more from any person without disclosing that he is an undischarged
bankrupt; or

(b)

If he engages in any trade or business under a name other than that under
which he was adjudicated without disclosing to all persons with whom he
enters into any business transactions the name under which he was
adjudicated bankrupt.
4.

Gambling:

Section 141(1) provides that any person who has been adjudged bankrupt
or in respect of whose Estate a receiving order has been made shall be
guilty of an offence if having been engaged in any trade or business and
having outstanding at the date of the receiving order any debts contracted
in the course and for the purposes of that trade on business:
(a)

He has within two years prior to the presentation of the petition materially
contributed to or increase the extent of his insolvency by gambling or by
rush and hazardous speculation and the gambling or speculations are
unconnected with his trade or business or;

(b)

He has between the date of presentation of the petition and the date of the
receiving order lost any part of his estate by gambling or rush and
hazardous speculation or

(c)

On being required by the official receiver at any time or in the cause of his
public examination by the court to account for the loss of any substantial
part of his Estate incurred within a period of a year next preceding the date
of the presentation of the petition or between that date and the date of the
receiving order he fails to give a satisfactory explanation of the manner in
which the loss was incurred.

5.

Failure to keep proper books:

Section 142 (1) BA provides that any person

who has been adjudged

bankrupt or in respect of whose estate a receiving order has been made

shall be guilty of an offence if having been engaged in any trade or business
during any period in the 3 years immediately preceding the date of
presentation of the petition he has not kept proper books of account
throughout that period and throughout any further period in which he was
so engaged between the date of the presentation of the petition and the
date of the receiving order or has not reserved all books of accounts so
kept.
6.

Bankrupt Absconding with Property:

Section 143 BA provides that if any person who is adjudged bankrupt or in

respect of whose estate a receiving order has been made after the
presentation of a petition or within 6 months before presentation quits
Kenya or attempts or makes preparation to quit Kenya, he shall unless he
proves that he had no intent to defraud be guilty of an offence.

BANKRUPTCY & COMMERCIAL SECURITIES LECTURE 10

13 .8. 04

DISTRIBUTION OF THE ESTATE:

Provisions relating to this are to be found in the second schedule to the BA.
(i)

Any creditor who wishes to make a claim against the estate of the
Bankrupt must prove his debt to the satisfaction of the Trustee.

The

Trustee is under a duty to convert all the Bankrupts property which is

divisible among creditors into money and to distribute the proceeds by way

of dividends among creditors who have proved in accordance with a due

order of priorities and in proportion to the amounts due to them. Up until
he has proved his debt a creditor is not entitled to vote at any meeting of
creditors or to receive any dividend.
DEBTS PROVABLE IN BANKRUPTCY
(a)

Approvable Debts
Section 35 (3) B.A. states that all debts and liabilities present or future
certain or contingent

to which the data is subject at the date of the

receiving order or to which he may become subject before his discharge by

reason of any obligation incurred before the date of the receiving order are
deemed to be debts provable in bankruptcy.
(b)

Non Provable Debts SECTION 35 BA

The following debts are not provable in bankruptcy

(i)

Claims for unliquidated damages in tort; this is under Section 35(1) B.A.
herein demands in the nature of unliquidated damages arising otherwise
than by reason of a contract promise or breach of trust are not provable in
bankruptcy.

Therefore claims arising out of a tort committed by the

bankrupt cannot be proved unless the damages become liquidated by

agreement or judgment before the dates of the receiving order.

A claim

arising out of a breach of contract fraud or breach of trust cannot be

excluded merely because the claim might alternatively be founded in tort.
(ii)

Debts incurred after notice of unavoidable act of bankruptcy under Section

35(2) B.A.

(iii)

Debts incurred after the date of the receiving order Section 35(3) BA

(iv)

Unenforceable Debts: these are debts founded on an illegal or immoral

consideration or statutes-barred debts;

(v)

Debts incapable of being fairly estimated under Section 35(6) of B.A

(vi)

Alimony and maintenance the common law liability of a husband to

maintain his wife is not a contractual liability and therefore does not
constitute a provable debt.
(c)

Contingent Liabilities

A contingent liability is one which at the date of prove is not certain to

arise. It is dependent upon the happening of some event which may or may
not take place. Subject to certain rules a creditor may prove for the full
value of a contingent liability
(d)

Periodical Payments:

Under Section 19 of the BA here where in rent or other payment falls due at
stated periods and the receiving order is made at any time other than any
one of those periods the person entitled to the payment may prove for a
proportionate part thereof upto the date of the order as if payment accrued
due from day to day.
(e)

Interest on Debts:

Under Section 36 B.A. here interest on debts is provable and payable.

MUTUAL DEALINGS
A creditor must subtract from what he is owed, from what he owes a debtor.

Secured Creditors
Those who hold mortgages, charges or a lien on the debtors property are
the secured creditors. On the debtors bankruptcy he may
1.

Rely on the security and not prove at all; or

2.

Surrender the security and prove the full amount of the debt; or

3.

Realise his security and prove for the balance if any; or

4.

Estimate the value of his security and prove for the balance.
Under Section 40 B.A.

a provision relating to the landlords power of

distress, the position is somewhat similar to that of a secured creditor. He

is entitled to seize the goods of a tenant in satisfaction of the rent due to
him.

In proving of debts the rules laid down in the 2 nd schedule to the

Bankruptcy Act must be observed.

ORDER OF PAYMENTS:
The Assets remaining after payment of the expenses properly incurred in
preserving, getting in and realising the assets of the bankrupt must be paid
out in the following order of priority:

1.

Costs and Charges incurred in the administration of the Estate;

2.

Preferential Debts;

3.

Unsecured debts;

4.

Deferred Debts;

5.

If there is any surplus this is to be returned to the Bankrupt. Section 3839 B.A.
Distribution 66-73 BA

SMALL ESTATES:
Under Section 120 if a petition is presented and the value of the debt is not
more than KShs. 12,000 the court may order that the debtors Estate be
administered summarily whereupon the provisions of the BA will apply
subject to the following modifications.

1.
2.
3.

Should the debtor be adjudged bankrupt, the official

receiver shall be the Trustee in Bankruptcy;
There is no committee of inspection, everything is done
by the official receiver;
Everything else may be modified to simplify the
procedure except for the provisions relating to
examination and discharge of the debtor.
HIRE PURCHASE
The Kenyan Hire Purchase Law is governed by the principles of the English
common law as modified by the Hire Purchase Act Cap 507 of the Laws of
Kenya. At common law a hire purchase agreement is defined as a contract
for the delivery of goods under which the Hirer is granted an option to
purchase the goods. The agreement is a hybrid form of contract in that it is
neither a simple bailment nor a contract of sale but combines elements of
both.
The original position at common law is that there are no formal
requirements for a hire purchase agreement. An oral agreement is valid
and binding.

The question of capacity to enter into Hire Purchase

Agreement is governed by the normal rules of contract law. because the

Hire Purchase Agreement is a form of bailment, it only applies to goods as
defined in the Sale of Goods Act. The terms of a Hire Purchase Agreement

must be stated with certainty and precision so as to enable the court to

ascertain the intention of the parties. The parties to the agreement must
reach consensus ad idem.
If the dealer fraudulently completes a document signed in blank by the
hirer, then no valid hire purchase contract results. Should the nature of the
document which the hirer signs be misrepresented to him so that he signs
in the belief that it is something essentially different from what it is the
hirer can plead

non est factum

and therefore escape liability.

(it is not my deed or it is not my act)

If there is a change in the condition of the

goods between the time of the offer and acceptance, again no valid
agreement comes into force.
In the case of an agreement between the dealer and the hirer without the
intervention of a finance company, a legally binding hire purchase
agreement comes into existence when the dealer posts a letter of
acceptance to the hirer or delivers the goods.
Where the finance company finances the transaction, although the dealer is
supplying the goods, the owner of the goods at the relevant time is a finance
company. The hirer therefore contracts with a finance company when he
enters into a hire purchase agreement. Thus there must be acceptance by
the finance company and communication of that acceptance to the hirer
which is normally done by posting him a copy of the agreement showing
execution by the company.
A hire purchase transaction has been described as a triangular transaction
with the Dealer and the Hirer at the bottom and the Finance company at the
top.

The question arises as to the effect of the delivery of goods by the dealer to
the hirer before acceptance by the finance company.

As far as the

obligations of the hirer are concerned, until acceptance of his proposal by

the finance company the hirer holds the goods as a bailee of the dealer.
Such bailment can be terminated at the will of the dealer or the hirer. It
however continues until the finance company purchases the goods from the
dealer and executes the hire purchase agreement. When this is done, the
bailment as between the dealer and the hirer terminates and is replaced by
the hire purchase agreement between the finance company and the hirer.
The hirer thereafter holds the goods as a bailee of the finance company
under the terms of the Hire Purchase Agreement.

Should the finance

company refuse to accept the transaction, the bailment between the dealer
and the hirer or is terminable by the dealer.
Before the finance company executes the hire purchase proposal the hirer
in possession of the goods owes the dealer a duty to take reasonable care of
the goods, the breach of which gives the dealer a right of action under the
tort of negligence or if wilful damage is caused to the goods then trespass
to goods. If the finance company refuses to accept the transaction the hirer
could be held liable in quasi contract to pay the dealer a reasonable charge
for the use of the goods.
Pending acceptance of the transaction by the finance company the hirer can
use the goods at will as bailee if there are no restrictions agreed between
him and the dealer. The dealer at that stage does not owe the hirer any
contractual duty as to fitness of the goods or their suitability because there
is no contract between them but simply a loan of the goods.

Should

however the hirer be injured, due to defects in the goods, which the dealer
knows or ought to know, the hirer can maintain an action in tort for
negligence.

If the proposal is not acceptable by the Finance Company, no contract

comes into existence in relation to the goods hence the bailment between
the dealer and the hirer terminates.
The liability of the finance company for the condition of the goods does not
start until it has entered into a higher purchase agreement.
Note that hire purchase agreements must not be impossible to perform,
contain a mistake on the part of either party or be illegal.
BANKRUPTCY & COMMERCIAL SECURITIES LECTURE 11

14 .8. 04

THE PASSING OF PROPERTY

There is no distinction between property and title under Hire Purchase.
This is because property which essentially means ownership of the goods
does not pass to the hirer till the option to purchase has been exercised.
Thus the hirer has the right to return the goods and terminate his liability at
any time.
Under Section 2 of the Factors Act of England 1889 which is a statute of
general application to Kenya if a Mercantile Agent disposes of the goods in
his possession with the consent of the owner he passes a good title to a
bona fide purchaser for value without notice. If then goods are lent to a
hirer who is a mercantile agent he cannot pass a good title to a 3 rd party
since the goods are lent to him in his personal capacity and not in the
capacity of a mercantile agent.
Section 22 of the English Sale of Goods Act of 1893 provides that a sale to a
bona fide purchaser in market overt according to the usage of the market
passes a good title even if the seller had no title. This therefore operates as

an exception to the nemo dat principle under Hire Purchase.

This

exception however does not operate under Kenyan law.

Sometimes the owner of the goods hired to the hirer who has resold them
may voluntarily relinquish his title to them after being paid and hence good
title passes to subsequent purchasers.

This is not quite an exception to

nemo dat but a modification of it.

The hirer under a hire purchase agreement possesses a contractual right to
acquire ownership of the goods upon payment of all instalments due and the
exercise of the option to purchase.

The question arises can the hirer

therefore assign the benefit of the Agreement?

At common law if a contract is silent on assignment then the hirer can
assign but if it specifically prohibits assignment then he should not assign.
REPOSSESSION BY THE OWNER
At common law an owner of goods is entitled to repossess them once the
bailment ceases or terminates. A hire purchase contract may provide that if
the hirer commits a specified breach then the agreement terminates
whereupon the owner is entitled to possession of the goods.

In cases of

resale of the goods by the hirer the hirer cannot pass a good title hence the
owner can repossess the goods from the innocent purchaser. The owners
claim to damages will be limited to the unpaid balance of the hire purchase
price. Should judgment be entered against the hirer, the judgment creditor
is not permitted to seize goods the subject matter of a hire purchase
agreement.
If the hirer does not disclose this fact to the judgment creditor and the hire
purchase goods are seized and sold the owner cannot maintain an action for

conversion against an innocent purchaser but he can recover the price for
which the goods were sold in an action for money had and received. If the
goods have not yet been sold then the owner is entitled to possession of
them from the judgment creditor.
In cases where the hirer is a tenant of leasehold premises and he fails to
pay rent, the landlord may re-enter the premises and seize all goods therein
whether they belong to the tenant or not. For the owner of the goods hired
to be protected, he must serve notice to the landlord that those goods
belong to him. Only then can he repossess them.
Where the hirer is adjudged bankrupt all his property vests in the trustee in
bankruptcy for distribution among creditors. But this does not apply to
goods let on hire purchase when the owner serves a notice to the hirer
withdrawing his consent to possession of the hired goods. The owner must
do this before the hirer is adjudged bankrupt.
Finally if hired goods are delivered to a bailee for repair the bailee has a
particular lien on the goods till his charges are paid by the hirer.

If the

owner is entitled to terminate the hiring, the repairer can still claim a lien
as against the owner.
In all the foregoing circumstances of the owner of the goods repossess
them, prima facie the hirer cannot claim relief against forfeiture of the
goods or the payments already made.
THE MINIMUM PAYING CLAUSE AND DAMAGES
In addition to the common law owners right of repossession of the hired
goods the owner may seek damages. Goods let on hire purchase depreciate
in value because of user. The owner seeks to pass the risk of depreciation

on to the hirer by providing in the Agreement that the hirer shall make a
minimum payment for the period the hirer has used the goods. This is
normally labelled compensation for depreciation.
The question is can the owner sue the hirer for the sums stated in the
minimum payment clause or can the hirer refuse to pay because the amount
is a penalty and not liquidated damages?
Common law courts took the position that it is for them to determine the
measure of damages payable in the event of breach of contract. If the
damages agreed between the parties is not a genuine pre-estimate of the
loss likely to be incurred upon breach the courts will strike it down as a
penalty.
There are 3 circumstances under hire purchase which invite the operation
of the minimum payment clause.
1.

In the case of the hirers breach of contract, the minimum payment clause
will be regarded as a penalty and hence be struck out whereupon the court
will assess the amount of damages payable.

2.

In the case of voluntary termination of the contract by the hirer by

returning the goods the minimum payment clause will be enforced.

3.

The minimum payment clause will be enforced in the case of involuntary

termination of the contract where either the hirer dies or becomes
bankrupt.
DAMAGES FOR BREACH OF CONTRACT

If the hirer commits a breach of any of the terms of hire purchase

agreement the owner may claim damages. The hirer has several obligations
the breach of which gives rise to damages namely
1.

the obligation to take delivery of the goods,

2.

the duty to take care of the goods,

3.
4.

the obligation to pay the instalments and

the obligation to continue the hiring for the agreed period.
Here the owners rights upon the hirers breach are termination of the
agreement, and a claim for damages.
CAVEAT EMPTOR UNDER HIRE PURCHASE
The obligations of the owner to the hirer are contained in the express or
implied terms of the agreement. Besides express terms there are several
implied terms

1.

There is an implied condition in the hire purchase agreement that the

owner of the goods has title to them.

2.

There is an implied warranty in a hire purchase agreement that the owner

in addition to putting the hirer into possession of the goods will leave him
into peaceful position of them during the currency of the agreement.

3.

At common law there is an implied term in all hire purchase agreements

that the goods are fit for the purpose for which they are let.

4.

At common law there is an implied term that the goods will correspond
with their description.

It may also be observed that there is an obligation cast on the owner to

deliver goods to the hirer. If the goods let under a hire purchase agreement
are not fit for their purpose these amounts to a breach of contract that
entitles the hirer to treat the contract as repudiated, reject the goods and
claim for what he has paid as well as damages.
Apart from liability in contract the owner may be liable in tort for
negligence if he knew or ought to have known of a defect in the goods
which causes injury to the hirer.
As a standard form contract drafted by the owner, the hire purchase
agreement often contains clauses excluding implied terms of the contract.
These are the exemption clauses or exclusion of liability clauses. The court
construes exemption clauses strictly and subjects them to the doctrine of
fundamental breach and breach of a fundamental term.
THE KENYA HIRE PURCHASE ACT 1968
Before the passing of the Kenyan Hire Purchase Act in 1968 the prevailing
law was that English common law vide the Indian Law of Contract, the
Kenyan Hire Purchase Act commenced operation on 2 nd November 1970. As
far as formalities are concerned, Section 3 stipulates that the Act applies to
all Hire Purchase Agreements for goods whose hire purchase price does not
exceed the sum of 300,000/-. This is via an amendment to the Act which
was made in 1991 and at the time of the enactment the financial ceiling was
only 80,000/=.
Secondly the Act does not apply to bodies corporate who are hirers. The
assumption of the statute is that if you are a private limited liability
company you need no protection from the Hire Purchase Act.

Section 4 establishes a registry of Hire Purchase Agreements presided over

by a registrar, his or her deputy and assistant. By virtue of Section 5(1) of
the statute all hire purchase agreements must be registered within 30 days
of execution upon payment of a registration fee. But there is a discretion
vested in a registrar to extend the time for registration if satisfied that the
failure to register was accidental or inadvertent.
The consequences of non-registration are grave for the owner under Section
5(4).
1.

No person shall be entitled to enforce the agreement against the hirer or

any contract of guarantee and the owner cannot recover the goods from the
hirer.

2.

No security given by the hirer or guarantor shall be enforceable.

Under Section 5(2) the agreement must be in the English language.
The information that must be contained in the Agreement is provided for in
Section 6 of the statute.

1.

The cash price of the goods as well as the hire purchase price must be
stated.

2.

Secondly the amount of each instalment and a period of repayment must

be stated.
The requirement as to the cash price may be satisfied in two ways as per
Section 6(1)

1.

If the hirer has inspected the goods or like goods and at the time of his
inspection tickets or labels were attached to or displayed with the goods
clearly stating the cash price either of the goods as a whole or of all the

different articles comprised therein then the requirement as to the cash

price is satisfied.
2.

If the hirer has selected the goods by reference to a catalogue pricelist or

advertisement which clearly stated the cash price either of the goods as a
whole or the different articles then the requirement as to the cash price is
fulfilled.
Non compliance with the provisions of Section 6 will make the agreement
unenforceable against the hirer and the guarantor. There are some other
requirements under Section 6. The agreements must be made and signed
by the hirer and by or on behalf of all the other parties. It must contain
notice in a prominent form stipulating the right of the hirer which are
basically the right of the hirer to terminate the agreement and the
restriction on the owners rights to repossess the goods.

A copy of the

agreement must be delivered or sent by registered post to the hirer within

21 days of the date of the agreement.