Bankruptcy Acts

In the ordinary course of things, bankruptcy

proceedings can be initiated when a person
(debtor) has failed to repay his debts, that is to
say, when one is insolvent. Legally speaking,
the proceedings can be initiated when there is
an act of bankruptcy. Section 3(1) (a)-(h) of
the Bankruptcy Act, list 8 acts which are
considered as acts of bankruptcy. These acts
are technical triggers of the bankruptcy
proceedings. The list is as follows:
(a). Assignment and Conveyance of the
Property to the Trustee
If a debtor conveys or assigns his property to
a trustee for the benefits of his creditors,
whether this is done in Tanzania or elsewhere,
he is said to have committed an act of
bankruptcy. Therefore, any assignment or
conveyance of the property to the trustee with
such purpose may qualify as an act of
bankruptcy and trigger the proceedings.
(b). Fraudulent Conveyance, Gift or
Transfer of Property
When a debtor conveys, deliver, transfer or
give as a gift his property or any part thereof
fraudulently, he is said to have committed an
act of bankruptcy. It is immaterial whether
that act was done in Tanzania or elsewhere.
(c). Void Conveyance, Transfer or Charge
of the Property
This happens when a debtor conveys, transfers
or creates a charge on his property which is
deemed to be void under this Act or any other
law if he were adjudged a bankrupt. It is also
immaterial whether the act was done in
Tanzania or elsewhere.
(d). Acts intending to Delay or Defeats
Creditors
When a debtor does any of the following acts
with intention to defeat or delay his creditors,
he is said to have committed an act of
bankruptcy: –
a.Departs out of the United Republic of
Tanzania;
 b. Being out of Tanzania remains out of
the Mainland Tanzania;
c.Departs from his dwelling house; or
d. Does not come to work (keeping
house)
(e). Execution by Seizure-Goods held by
Bailiff for 21 days
This occurs when there is an execution
emanating from the civil proceedings against
the debtor. That execution has been levied by
seizure against the debtor’s goods and the
goods have been either sold or held by the
bailiff for twenty-one days.
(f). Filing a Declaration of Inability to Pay
Debts
This is when a debtor files in the court a
declaration of his inability to pay his debts or
presents a bankruptcy petition against himself.
(g). Served with a Bankruptcy Notice
This happens when a creditor who has
obtained a final judgment or final order
against a debtor serve him with a Bankruptcy
Notice as provided under section 4
of the Act. And after receiving that notice, the
debtor does not raise a counter-claim, set off
or cross-demand which equals or exceeds the
claimed sum.
(h). Giving Notice of Suspension of Debts
Payment
This occurs when a debtor gives notice to any
of his creditors that he has suspended, or that
he is about to suspend, payment of his debts.
Who may Petition for a Bankruptcy?
When any of the above acts of bankruptcy is
committed, either the debtor himself or
creditor may bring a petition for bankruptcy
before the Court. However, for a creditor to be
able to present a petition for a bankruptcy
against the debtor, the conditions set out under
section 6 of the Act must be satisfied. These
are: –
a.The debt must at least amount to
Tshs.1,000;
 b. The debt must be a liquidated sum;
c.The debt must be payable either
immediately or at a certain future time;
d. The bankruptcy act must have occurred
within 3 months before presentation of
petition; and,
e.The debtor is domiciled in Tanzania or
was domiciling in Tanzania within a year
before the presentation of the petition.
Which Court has Jurisdiction to Entertain
Bankruptcy Petition
According to section 97 of the Bankruptcy
Act, the High Court has jurisdiction to
entertain bankruptcy petition. However, the
Chief Justice has powers to delegate the
jurisdiction to any subordinate courts. This
may be general delegation or delegation for a
particular case or classes of cases.
What happens when Petition is Presented
When the petition is presented in compliance
with the provisions of the Act, the Court may,
if satisfied issue a RECEIVING ORDER for
the protection of the estate of the debtor.
When a receiving order is made, an
OFFICIAL RECEIVER is thereby
constituted. The receiving order is then
required to be published in a gazette as
provided under section 13 of the Act. The
official receiver will be in charge of the
properties of the debtor. The official receiver
is required to conduct a first meeting of the
creditors in order for creditors to consider
whether to accept the composition or scheme
of arrangement as proposed by the debtor (if
any) or to resolve that the debtor be adjudged
a bankrupt.
Consequences of the Receiving Order
When the receiving order is issued, no action
or claim can be brought against the debtor by
any unsecured creditor with respect to debt
unless with a leave of the Court. Technically,
this provides a relief to the debtor since he is
not legally bound to pay the debts and the
remedies which the creditors have against the
debtors are suspended.
Adjudication of Bankruptcy
If the creditors meeting resolves that the
debtor be adjudged a bankrupt, or the
composition and scheme of arrangement
proposed by the debtor is not approved within
14 days or such other time as allowed by
Court or if the debtor himself with
concurrence of the official receiver agrees in
writing to be adjudged a bankrupt, a Court
shall then adjudge a debtor BANKRUPT.
Consequences of Being Adjudged Bankrupt
Once adjudged bankrupt, the properties of the
debtor become divisible amongst his creditors
and vest in a trustee. Notice of bankrupt
adjudication shall then be published in a
gazette. The notice contains name of the
bankrupt, his residential and business address,
description and date of the adjudication.
Technically speaking, when a debtor is
adjudged bankrupt, he is medically alive but
legally as good as dead. This is because, the
bankruptcy adjudication has an impact of
restricting the bankrupt to do certain things as
other living persons. Some of the things
which a bankrupt cannot do include the
following: –
a.Entering into any kind of contracts, for he
is deemed to be incompetent person;
b. Being employed in any trade or
business unless with the permission of the
court;
c.Managing any trade or business unless
with the permission of the court;
d. Accessing credits in financial
institutions; etc.
Being adjudged a bankrupt may be a blessing
and curse at the same time. On one hand, it is
a blessing since the debts are discharged and
remedies of the unsecured creditors are
suspended while on the other, the bankrupt’s
freedom to do certain things is restricted as
stated above.
Therefore, individuals considering bankruptcy
should weigh up the pros and cons mentioned
above before deciding whether to proceed. It
goes without saying that bankruptcy is a
complex and technical process which needs
guidance of legal and financial advisor(s).
Victory Attorneys & Consultants are experts
on this and other liquidation processes.