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

preceded the modern limited liability companies.
were therefore on the increase.

which

Debtors

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.

distinction is sought to be made between

dishonest

debtors

who

should

be

punished and the honest but unfortunate

ones who should somewhat be protected .

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.

It 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. 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.
debtor is.

The Bankruptcy Act (BA) Section 3(2) defines who a

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

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

debtor

makes

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.

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 non-compliance from
the creditor issuing the notice.
8.

GIVING NOTICE TO CREDITORS OF SUSPENSION OR

INTENTION TO SUSPEND DEBTS

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.
Daintrey [1893] 2 Q.B. 116.
Bankruptcy & Commercial Securities-Lecture 6
The First Meeting of Creditors

In Re

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
otherwise

or

attending
delaying

an

or

examination

embarrassing

or
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

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 noncompliant 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.

A 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) The

particulars

of

assets,

debts

and

liabilities;
(b) 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

resolution;
2.

If they pass no resolution;

3.

If they do not meet at all;

resolve

by

ordinary

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.

If the public examination is adjourned sine die;

9.

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.

If in the opinion of the court the debtor ought not to

have been adjudged bankrupt;

2.

If his debts are paid in full;

3.

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
Bankruptcy offences.

DISABILITIES OF A BANKRUPT
Upon adjudication the bankrupt becomes subject to the following
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 receiver submits a report as to the

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 a 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.

Mentioned by Professor Mutunga and Piciotto and Whitford and Mcneil

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 non-delivery 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

8. 04
DISTRIBUTION OF THE ESTATE:

13 .

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 38-39 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.

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;

3.

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

not my act) and therefore escape liability.

(it is not my deed or it is

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 3rd 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.