Bankruptcy and Commercial Securities

Bankruptcy and Commercial Securities - Bankruptcy and...

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Bankruptcy and Commercial Securities –Lecture 1 Definition Bankruptcy: The unpleasant condition of being bankrupt, which can be brought upon a debtor by a legal petition either from himself of from an unpaid creditor. Bankruptcy: a person is insolvent if he is unable to pay his debts as they fall due. A creditor may ‘sue for bankruptcy’ in order that a court may declare the person legally bankrupt which will affect his ability to undertake commercial transactions. Bankruptcy: When a firm or individual goes bust. That simple definition becomes complicated in practice: at what point should bankruptcy be declared, how are creditors paid off, can a bankrupt company continue operating, how long should an individual bankrupt be penalized for his past? The British answer to these questions has traditionally been more extreme than the American or continental European approach. In the United States, companies can file for “Chapter 11 bankruptcy”: by presenting the court with an acceptable plan for recovery, they can be protected from their creditors for a specified period. Japan has bankruptcy laws modeled on America’s, although close relations between firms, banks and shareholders mean that big collapses are rare. In Britain, a firm or its creditors can apply for a bankruptcy order. If granted, the company’s assets come under the control of an official receiver, who appoints a liquidator to sell them and distribute the proceeds. Bankruptcy: Where a person becomes bankrupt, a trustee in bankruptcy may be appointed and given statutory power to sue for debts due to the bankrupt party. Certain rights of action will not pass to the trustee, however. Thus he may not sue in respect of personal services to be rendered by the bankrupt, nor may the trustee sue in respect of rights of actions which the bankrupt may have in defamation. The trustee may also disclaim onerous contracts which the bankrupt hay have made, thus discharging the debtor form his obligations. Insolvency: a state in which a business or person is unable to pay debts as they fall due. Experience in dealing with insolvency and bankruptcy was fundamental to the mergence of the accountancy profession in the UK in the second half of the 19 th century. Insolvency: Strictly, the condition of a company whose liabilities (what it owes) exceed its assets (what it owns and what it is owed). Not all 1
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insolvent companies end up in the corporate graveyard. Understanding creditors may help them to work themselves out of insolvency. More often than not, insolvent companies are ”wound up” with their creditors getting whatever they can from the forced sale of the company’s assets. The bankruptcy proceedings in Kenya are governed by the Kenya Bankruptcy Act (Cap 53). This act is based on the English Bankruptcy Act 1914 According to Blackstone: “Bankruptcy is a proceeding by which, when a debtor cannot pay his debts or discharge his liabilities or the persons to whom he owes money or has incurred liabilities cannot obtain
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