THE LEGAL STEP WHEN I CAN'T PAY MY DEBTS: CAN AN INDIVIDUAL PETITION FOR THEIR OWN INSOLVENCY

WHEN A DEBTOR MAY PETITION FOR THEIR OWN BANKRUPTCY 

A debtor has been described as one who owes an obligation to another, especially an obligation to pay money. A bankrupt person is one in respect of whom a bankruptcy order has been made per Section 2. 

 Who can petition for bankruptcy? 

Where one being the debtor, is unable to pay their debts, they may petition for their bankruptcy subject to section 20(1). This is also stated under regulation 7 of insolvency regulations which states that a debtor may petition court for his or her bankruptcy where the debtor has been served with a statutory demand and is unable to comply with the demand or is unable to pay his or her debts). 

This is also termed as voluntary bankruptcy. Other persons that can petition for bankruptcy may be creditors under sec. 69, directors under sec. 271 and members of the company under sec. 62 as seen in Re Imperial Investment Finance Ltd However in a bid to safeguard creditors’ interests against the fate of debtors’ bankruptcy, it has been stated in the matter of Kakyo (A debtor) that it’s the responsibility of the creditor to protect own interests while giving out credit… to measure the truthfulness and genuineness of such security or information as they are considered at a higher level in such arrangements. Courts of laws’ authority to issue bankruptcy orders is evident under section 20(1) which states that A debtor may petition court for bankruptcy alleging that the debtor is unable to pay his or her debts and the court may make a bankruptcy order in respect of the debtor. 

 Court upon hearing a petition for bankruptcy, may dismiss it if it has no merit or make a receiving order if it is found to be with merit. 

However, it is important to note that such a receiving order does not make the debtor bankrupt but rather places his property in safe custody of a receiver pending the outcome of the proceedings. Upon presentation of the petition to court, it shall make a bankruptcy order declaring the debtor bankrupt and shall appoint the official receiver as interim receiver of the estate, for the preservation of the estate of the bankrupt. 

In Uzairu Ahamed Magala , court stated that for a receiving order to be made, it is necessary that the petitioner should have fulfilled the following; proved his inability to pay his debts which then would obligate the court to grant the receiving order. 

 Prerequisites for a bankruptcy order. For one to petition for an insolvency order, two major facts must be proved as held in Re Teddy Seezi Cheeye where court held that in a bankruptcy petition, the two essential elements required are proof of a debt and proof of inability to pay debts. It went further to hold that failure to pay a judgment debt constitutes an inability to pay ones debts. 

 The process goes that a debtor, upon failing to meet the statutory demand, petitions court which considers the circumstances of bankruptcy shall declare the debtor bankrupt and appoint the official receiver as interim receiver of the estate for the preservation of the estate of the bankrupt. The petition for bankruptcy can be brought by both the debtor and his creditors. While in court, the debtor is required to present a statement of his affairs by affidavit which shall contain information on all his creditors and assets. 

The court orders a public examination of the debtor’s assets, dealings and affairs. Amid investigation, a debtor is required to give information on oath and be subjected to any questions by the creditors. The receiver pursuant to sec 20(4) shall have the powers to sell or otherwise dispose of any perishable and nay other goods, the value of which is likely to diminish if they’re not disposed of unless court limits the powers or places conditions on the exercise. The bankruptcy then commences on the date on which the bankruptcy order is granted.

Proof of a debt. 

 This may be done by attaching court judgments if any exists, statement of affairs duly certified by the official receiver and attested by a notary public in which the details of his creditors and debts are fully specified. This was also judicially expressed by James Munange Ogoola, J (as he was then)in the case of Thomas I kato as he stated that where a petitioner had proved his indebtedness by attaching court judgments which showed decretal sums which were against him or her as remaining unsatisfied and which fact that the very petitioner had indicated so in his statement of affairs then the court’s conclusion would be that the petitioner had committed an act of bankruptcy and therefore consequential orders should follow. 

 A debtor may petition court for bankruptcy alleging that he is unable to pay his debts and the court may subject to submission of a statement of affairs and a public examination of the debtor make a bankruptcy order in respect of the debtor per section 20(1). The petition is accompanied by a statement of affairs under section 21. A statement of affairs is a list of the person’s assets and liabilities.

 Existence of a due debt. The court in SNP Panbus V Juronyshipyard Ltd noted that it is necessary for the creditor to have a Due debt which the debtor has neglected to pay or to secure or compound to the reasonable satisfaction of the creditor after it has been served with a statutory notice to pay. This means that the debt therefore should not be disputed debt. 

 Proof of a Contingent or prospective debts It is important to note that the nature of the failed debt need not necessarily be of due date. It can be failure to pay a debt payable in the future. This has been accordingly held so in Re Barr (A Bankrupt) where the appellant court held that the petition had been wrongly dismissed; a petition for bankruptcy may be presented in respect of a debt payable immediately or at some future date. 

However the requirement of a due debt does not prevent proof of inability to pay debt by other means such as proving contingent or prospective debts as against the debtor. Contingent or prospective debts are not presently due for payment but may be in the future.

 A prospective debt is one which will certainly become due in the future, either on some date which has already been determined or on some date determinable by reference to future events. Where no debt exists. 

However, where court makes a finding that no debt exists court declares that there is no creditor and that the claimant has no locus standi. It follows that for any debt which is in dispute on some substantial grounds and not on frivolous grounds, or without substance and which the court should therefore ignore, the company is deemed solvent. This was the position in Re Global Tours and Travels. 

 Proof of inability to pay. Inability to pay debts is presumed where ; 

 (a) The debtor has failed to comply with a statutory demand 

 (b) The execution issued against the debtor in respect of a judgment debt has been returned unsatisfied in whole or in part

 (c) All or substantially all the property of the debtor is in the possession or control of a receiver or some other person enforcing a charge over that property. 

 Failure to comply with a statutory demand. Subject to regulation 9 (1) of the insolvency regulations, a debtor’s failure to satisfy a statutory demand and failure to apply for time extension to enable compliance to statutory demand can entitle a creditor to petition the court to make a bankruptcy order against the debtor. 

 In the case of General Parts (U) Ltd V NPART30 where UCB initially sued General Parts (U) seeking a declaratory Judgment that it had properly appointed a receiver, court held that the demand must be unequivocal and must state the consequences. Thus it should be detailed enough. It should include that a debtor has a right to apply to the court to set aside the statutory demand. Reasonable attempts to repay back. It avails a good reason for a debtor to adduce evidence before court of his/her having taken reasonable steps to pay back their debts but has failed. 

This serves to back their petition for bankruptcy. In the Kakyo case, court considered the fact that the petitioner had tried to do poultry business to raise money and pay off her creditors but had failed. The freezing of her bank accounts and the seizure of the petitioner’s home by the bank were also considered together with the fact that the petitioner did not have any more tangible or immovable property that could be used for ameliorating the situation and thus she was considered bankrupt. Committal of an act of bankruptcy. 

An act of bankruptcy is committed when a debtor files before court a declaration of his inability to pay the debts stated in his statement of affairs and more so when he presents a bankruptcy petition against himself. 

A debtor commits an act of bankruptcy where he or she conveys or assigns all property to a trustee for the benefit of his creditors generally as was in Re Spackman where it was stated that the assignment must be for the benefit of all creditors generally and not just a class. Similarly, a notice given without prejudice has been held to be admissible as proof of the acts of bankruptcy . 

 A debtor may also petition for bankruptcy if he or she does not have any properties that can be administered by the trustee in bankruptcy . This is usually among the key aspects considered as soon as court declares one to be bankrupt although it is also a consideration in determining bankruptcy. However, the debtor is not declared bankrupt until the court accepts and endorses the petition. 

This was expressed in the case of In Re Jackson exparte Jackson where it was held that it is not only presentation of the debtor’s petition which makes a debtor bankrupt. It is the court’s acceptance of the petition and endorsement of that acceptance.

 It is important to note that bankruptcy shall commence on the date on which the bankruptcy order is made in regards to the Insolvency Act 2011. It is important to note that the debtor is not declared bankrupt until the court accepts and endorses the petition as was expressed case of in Re Jackson exparte Jackson where it was held that it is not only presentation of the debtor’s petition which makes a debtor bankrupt. It is the court’s acceptance of the petition and endorsement of that acceptance. 

Furthermore, bankruptcy shall commence on the date on which the bankruptcy order is made. In conclusion, it is worth appreciating the laws in force in their effort to safeguard the interests of both creditors and debtors through various receivership and liquidation mechanisms. The process of bankruptcy should not be misunderstood as protecting only a single party’s interest i.e. a debtor nor should it be perceived as massaging defaults in payment. It is great tool towards striking balance in realization of the debtor-creditor interests. 

 AHIMBISIBWE INNOCENT BENJAMIN 

(Entertainment Lawyer)

 BIBLIOGRAPHY 

Statutes •

Insolvency Act 2011 •

 The Insolvency Regulations, 2013 

CASE LAW 

• In the matter of Helen Kakyo (a debtor) bankruptcy cause no.4 of 2014 (2015) UG COMMC 167 (23 October 2015) 

• In the matter of a petition for receiving order by Thomas I. Kato ((Bankruptcy petition No.13 of 2002 page 1 and 2)) [2002] UGCOMMC 21 (10 October 2002) 

• R v. Pike 1902 1 QB 552 • In Re Jackson exparte Jackson 1989 EA at 145 • Mann and another v Goldstein and another (1968) ALLER 769 

• Cornhill Insurance Plc V Improvement Services Ltd (1986) 1 WLR 114

 • Re Teddy Seezi Cheeye (1996) IV KALR 116 • Re Barr (A Bankrupt) (1990) Ch 773

 • Re Global Tours and Travels (2001) 1 EA 195

 • Re Imperial Investment Finance Ltd • Uzairu Ahamed Magala 

• Thomas I kato 

• SNP Panbus V Juronyshipyard Ltd • General Parts (U) Ltd V NPART30 • Re Jackson exparte Jackson

 • TEXT BOOKS. 

• Uganda Insolvency Law handbook by Nelson Nerima at page 27. • Principles of bankruptcy by Ringwood, Great Britain https://us.docworkspace.com/d/sIMXbsvYyttO9jAY