The Insolvency Act, No 18 of 2015 (the “Act”), which became fully operational through Legal Notice No. 119/2016 published on 27th June 2016, repealed the Bankruptcy Act (Cap. 53).
Once the debts of a bankrupt individual or of the company are ascertained, they will be paid out to creditors. The Second Schedule to the Act sets out preferential debts in order of their priority as follows:
First priority claims
These include the costs of the bankruptcy process i.e.
i. The bankruptcy trustee’s/liquidator’s/administrator’s remuneration;
ii. Reasonable costs incurred during the court proceedings; and
iii. Costs incurred by the creditor to preserve the bankrupt’s assets.
This is provided for under section 247 of the Act (for bankrupts), section 473 (for companies in liquidation) and section 615 (for companies under administration).
Second priority claims
These include the following:
i. Wages and salaries payable to employees of the bankrupt during the four months before the commencement of bankruptcy. Each employee is entitled to a maximum of Kshs. 200,000. These amounts also include holiday pay and compensation for redundancy and for loss of employment before, or because of, the bankruptcy/liquidation.
ii. Statutory deductions from employees (e.g. PAYE, NSSF, NHIF).
iii. Amounts that are preferential claims under section 175(2) and (3) of the Act, which are for services relating to the bankrupt’s business records and has a lien over such documents (having not been paid). Advocates and accountants would fall in this category. The maximum amount payable is capped at Kshs. 200,000.
iv. Other amounts required by other written law (especially those paid by the buyer to a seller on account of the purchase price of goods).
Third priority claims are the taxes payable by the bankrupt such as income tax, customs duty and excise duty which are unpaid.
Claims having the same priority rank equally among themselves and are payable in full, unless the property of the bankrupt is insufficient to meet them whereupon they shall be paid out in equal proportions to the creditors. After the payment of the debts, any surplus is to be applied in paying outstanding interest on debts since the commencement of the bankruptcy.
Please contact us at Info@cfllegal.com should you require further information.
