In the Matter of the Bankruptcy Act (Cap 53) and In the Matter of a Bankruptcy Notice dated 30th August, 1990 (Ex parte the Debtor)
The bottom line
#A Kenyan debtor lost his bid to cancel a bankruptcy notice because he offered no real proof that the property and guarantee he offered were worth anything.
What this practically means
#Executive summary
#Key legal issues
#Whether a bankruptcy notice may be set aside on grounds other than those in rule 100(2) of the Bankruptcy Rules (counter-claim, set-off or cross-demand).
Yes. The court's power is not confined to rule 100(2); relying on Halsbury's Laws of England and In Re A (Ex parte The Debtor) v Harman, a notice may be set aside in a proper case on other grounds, so the debtor's application was properly before the court.
Counsel for the creditor argued that rule 100(2) exhaustively defined the grounds for setting aside a notice. The court observed that the notice itself offered the debtor three alternatives - pay, secure or compound, or prove a counter-claim - and that the English provision considered in Re A corresponded with section 3(1)(g). Adopting Halsbury Article 273 and the English holding, the court concluded broader grounds were available and the motion was properly before it.
Whether the security offered - a charge over Nairobi/Block 92/73 guaranteed by Lucia & Company Limited - was adequate and the creditor's refusal of it unreasonable.
No. The only evidence of value was counsel's bare belief; there was no valuation report, no proof of the guarantor company's financial ability, and doubt whether its memorandum authorised guaranteeing third-party debts or charging its land. The creditor's refusal was not unreasonable.
The debtor had to satisfy the court that the security was worthwhile. Counsel could not even say whether the 0.2316-hectare property was vacant land or built-up, and no valuation report existed. No evidence established the guarantor's financial capacity; clauses 3(m) and 3(n) of the memorandum arguably did not authorise the transaction; and enforcing a charge under the Registered Land Act would postpone an old debt by at least seven months.
Whether the creditor's pursuit of bankruptcy was oppressive so as to justify depriving it of the right to petition.
Not established. Absent a very strong case by the debtor or proof of oppressive exercise of the statutory right, the creditor's entitlement to file a bankruptcy petition on the available act of bankruptcy could not be taken away.
The court accepted bankruptcy is a serious matter, particularly for a debtor of great social and political standing, but insisted the creditor's statutory right yields only to a very strong case or demonstrated oppression. The evidential thinness of the security offer - no valuation, no proof of the guarantor's means, doubtful authority under the memorandum - meant neither threshold was met and the discretion could not be exercised for the debtor.
Legal principles established
#- A debtor may oppose a bankruptcy notice not only by proving a counter-claim, set-off or cross-demand but also by showing that he is in a position to secure or compound for the judgment debt to the satisfaction of the Court.
- A debtor seeking to set aside a bankruptcy notice must set up a very strong case, or show that the creditor is exercising its right to petition oppressively, before the court will deprive the creditor of that statutory right.
- The adequacy of security offered for a judgment debt, and the reasonableness of the creditor's refusal of it, must be established by evidence such as a valuation report and proof of a guarantor's financial ability.
Court orders
#- 1.The debtor's application to set aside the bankruptcy notice dated 30th August, 1990 is dismissed.
- 2.The applicant/debtor to pay the costs of the application to the creditor/respondent.
- Jurisdiction invoked
- Section 4 of the Bankruptcy Act (Cap 53) and rule 15 of the Bankruptcy Rules
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "In the Matter of the Bankruptcy Act (Cap 53) and In the Matter of a Bankruptcy Notice dated 30th August, 1990 (Ex parte the Debtor)", Case Analysis (1991). Notice of Motion dated 20th September, 1990. Source:
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.