CCP Advanced Level

Debt Recovery Management flashcards

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Complete Flashcard Reference

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What is the difference between insolvency and bankruptcy?

Insolvency: the economic fact of being unable to pay debts as they fall due, or having liabilities that exceed assets. Bankruptcy: the formal legal status and process that follows once a court declares an insolvent individual bankrupt. An insolvent person is not automatically bankrupt: bankruptcy needs a petition and a court order.

What does the Limitation of Actions Act mean for a creditor chasing an old debt?

It sets the time within which the creditor must sue, commonly six years for simple contract debts. After that the debt is statute-barred. Always establish exactly when the cause of action arose before judging whether recovery is still viable.

In what order are a liquidated company's realised assets applied?

1. Liquidation costs and expenses. 2. Secured creditors, to the extent of their security. 3. Preferential creditors (for example certain employee claims). 4. Unsecured creditors. 5. Any surplus to shareholders. Never skip a tier, even where it seems to have little left to distribute.

How do you match a debtor to the right alternative to bankruptcy?

Look at the asset position and income capacity first. No assets and no steady income: the no asset procedure. A stable income but no lump sum: a summary instalment order. Several creditors and a wish to avoid bankruptcy's consequences: a voluntary arrangement the creditors vote on.

What is the difference between the break-up and the dissolution of a partnership?

Break-up is the triggering event: expiry of a fixed term, a partner's death or withdrawal, or mutual agreement. Dissolution is the formal legal end, once winding up is complete. In between, the partnership continues to exist in a wind-down state.

Is an arbitral award self-executing?

No. A binding award is enforced through the courts in much the same way as a court judgment, using the same execution mechanisms. Kenya's Arbitration Act and, for foreign awards, the New York Convention support its enforceability. Arbitration resolves the dispute faster; actual recovery still depends on enforcement.

How do the UNCITRAL Model Law, the UNCITRAL Legislative Guide and the World Bank Principles differ in scope?

Model Law: cross-border coordination specifically (recognition of foreign proceedings, cooperation between courts, concurrent proceedings). Legislative Guide: designing a domestic insolvency law broadly, covering liquidation and reorganisation. World Bank Principles: benchmarks for assessing and comparing a country's overall insolvency and creditor rights regime.

An attached vehicle sells for KES 3,500,000, auction costs are KES 250,000 and the judgment debt is KES 2,800,000. How are the proceeds applied?

Costs first: 3,500,000 - 250,000 = KES 3,250,000. Then the judgment debt: 3,250,000 - 2,800,000 = KES 450,000 surplus. The KES 450,000 must be returned to the debtor, who has a clear legal right to it once the debt and costs are satisfied.

What did Shire v Thabiti Finance Co. Ltd (Court of Appeal) decide about acknowledging a debt?

A written acknowledgement of a debt, or a part payment, does not merely extend the limitation period: it revives an otherwise statute-barred action. It creates a fresh cause of action running from the date of the acknowledgement or payment. It works even after the original six-year period has expired.

Who may lawfully conduct the attachment and sale of property in debt recovery?

Only auctioneers licensed under the Auctioneers Act. The restriction protects debtors from unregulated, potentially abusive seizure by unqualified or unaccountable individuals. An unlicensed or improperly conducted auction can undermine an otherwise sound recovery.

Which statute governs individual insolvency in Kenya, and what did it change?