Annulment of a Bankruptcy Order-Kenya

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The word “annulment” means to void, nullify or to invalidate. In this case, it is the cancelling of a bankruptcy order which releases the bankrupt from restrictions placed upon him or her by law.

Annulment of bankruptcy orders is under Section 272, 273 and 274 of the Insolvency Act, laws of Kenya.

Who can annul a bankruptcy order?

A bankruptcy order may be annulled by an Official Receiver or a court.

Annulment by the Court

The Official Receiver or any other person claiming to have a legitimate interest in the matter may make an application to the court for an order of annulment.-Section 272(1).

Why would a bankruptcy order be annulled?

According to Section 272(2)(a)-(d), the Court may annul a bankruptcy order if:

(a) on reconsideration it finds that the bankrupt should not have been adjudged bankrupt;

(b) it is satisfied that the bankrupt’s debts have been fully paid or satisfied and that the bankruptcy trustee’s fees and costs incurred in the bankruptcy have been paid;

(c) it considers that the liability of the bankrupt to pay the bankrupt’s debts should be revived because there has been a substantial change in the bankrupt’s financial circumstances since the bankruptcy commenced; or

(d) it has approved a deed of composition under Division 24 of Part III or a voluntary arrangement under Division 1 of Part IV.

N.B: An Official Receiver is a civil servant and an officer of the court who has statutory duty to investigate the conduct and affairs of the bankrupt. 

How is a bankruptcy order annulment application made?

If an application is made by an applicant other than the Official Receiver:

(a) the applicant shall serve a copy of the application on the Official Receiver in the manner and within the period directed by the Court; and

(b) on being served with a copy of the application, the Official Receiver is entitled to appear at the hearing of the application as a party to the proceeding.

Annulment by Official Receiver

According to Section 273, the Official Receiver can only annul a bankruptcy order as a result of the debtor’s application.

The Official Receiver may annul the bankruptcy order on the application of
any person interested or on the Official Receiver’s own initiative.

Why would a bankruptcy order be annulled?

According to Section 273(2) the grounds for annulment by an Official Receiver are the same as the grounds for annulment by the court. These grounds are:

(a) on reconsideration it finds that the bankrupt should not have been adjudged bankrupt;

(b) it is satisfied that the bankrupt’s debts have been fully paid or satisfied and that the bankruptcy trustee’s fees and costs incurred in the bankruptcy have been paid;

(c) it considers that the liability of the bankrupt to pay the bankrupt’s debts should be revived because there has been a substantial change in the bankrupt’s financial circumstances since the bankruptcy commenced; or

(d) it has approved a deed of composition under Division 24 of Part III or a voluntary arrangement under Division 1 of Part IV.

When does this bankruptcy order take effect?

A bankruptcy order annulment commences in 2 ways:

(a) If the bankrupt should not have been adjudged bankrupt in the first place (Section 272(2)(a)), either due to an error in form or procedure, the order is annulled from the time the bankruptcy order was made.

(b) If the application is made on any of the grounds specified in Section 272 (2)(b)-(d), the annulment commences from the time the Court makes the order of annulment.

If an application for annulment is made on the ground that the bankrupt should not have been adjudged bankrupt because of a defect in form or procedure, the court may, in addition to annulling the bankruptcy order, exercise its powers under Section 696 to correct the defect and order that the bankruptcy application be reheard as if no bankruptcy order had been made.

What happens after a bankruptcy order is annulled?

If a bankruptcy order is annulled on one of the grounds specified in Section 272 (2)(a) to (c)—

(a) the court may, on the Official Receiver’s application, fix an amount as reasonable payment for the Official Receiver’s services and order that it be paid, in addition to any costs that may be awarded;

(b) the Official Receiver shall pay that amount into the Consolidated Fund or into some other public account prescribed by the insolvency regulations, and

(c) the Official Receiver is not entitled to remuneration under section 710 for those services.

 

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