It is provided under section 14 and 15 of the BA as read with the first schedule to the BA. As soon as may be after the making of the receiving order against a debtor a general meeting of his creditors referred to as the first meeting shall be held for the purpose of considering whether a proposal for a composition or scheme of arrangement shall be accepted or whether it is expedient that the debtor shall be adjudged bankrupt and generally as to the mode of dealing with a debtor’s property with respect to the summoning of and proceedings at the first and other meetings of creditors the rules in the first schedule to the BA apply.
The official receiver must summon the first meeting of creditors not latter than 60 days after the date of the receiving order. He must give not less than 6 clear days notice of the time and place in the Kenya Gazette and in a local daily paper. Furthermore he must send a notice to each creditor mentioned in the statement of affairs. Together with this notice he must also send a summary of the statement of affairs with comments which he may wish to make as well as a form of proxy. If a composition or scheme of arrangement is to be considered at the meeting he must send a copy of the scheme and his remarks thereof. Notice must also be sent to the debtor to attend the meeting.
The official receiver or his nominee chairs the meeting. All creditors may attend but a creditor who has not previously lodged approval of his debt may not vote at the meeting. The purpose of the meeting is to decide whether the debtor should be adjudged bankrupt or whether any composition or scheme which he may have submitted should be accepted and in the former case the creditors may appoint a trustee and a committee of inspection.
Composition or scheme of arrangement
This is provided for under section 18 BA and BR 160-169. A composition is an arrangement between two or more persons for the payment of one to the others of a sum of money in satisfaction of an obligation to pay another sum differing either in amount or mode of payment.
A scheme of arrangement is a proposal of dealing with his debts by an insolvent debtor by applying his assets or income in proportionate payment of them which proposal if agreed by his creditors or the requisite majority of them. Therefore the scheme or composition is on the debtor’s initiative. If the debtor wishes to make a proposal for a composition or for a scheme of arrangement of his affairs the provisions of section 18 BA come into operation:
1. He must lodge his proposal with an official receiver within 4 days of submitting his statement of affairs or within such further time as the official receiver may allow. The proposal must be in writing and signed by the debtor.
2. The official receiver must summon a meeting of creditors before the public examination of the debtor is concluded and send to its creditors before the meeting a copy of the debtor’s proposal with his report attached thereto.
3. The proposal must be approved by a majority in number and 3/4 in value of all the creditors who have proved their debts. Creditors may vote by letter in the subscribed form to the official receiver so as to be received by him not later than the day preceding the meeting. Creditors who do not vote are regarded as voting against the resolution.
4. The debtor may at the meeting amend the terms of his proposal if the amendment is in the opinion of the official receiver calculated to benefit the general body of creditors.
5. After the proposal is accepted by the creditors it must be approved by the court. Either the debtor or the official receiver may apply to the court to approve it and three days notice of the time appointed for hearing the application must be given to each creditor who has proved his debts.
6. The application cannot be heard until after the conclusion of the public examination of the debtor. Before approving the proposal the court must hear the report of the official receiver as to its terms and as to the conduct of the debtor and any objections which may be made by or on behalf of any creditor. A creditor may oppose the application not withstanding that he voted for its acceptance at the meeting of creditors.
7. The court must refuse to approve the proposal in the following cases:
a) if in its opinion the terms of the proposal are unreasonable or not for the benefit of the general body of creditors.
b) If any facts are proved which will require the court either to refuse, suspend or attach conditions to the discharge of the debtor were he to be adjudged bankrupt unless the scheme provides security for the payment of not less than 5 pound of all the unsecured debts proved.
c) If provision is not made for the payment of the preferential debts on priority to the payment of all other debts.
8. In any other case, the court may either approve or refuse to approve the proposal.
9. Once a composition or scheme is approved by the court it is binding on all creditors whose debt are proved with the exception unless the creditor accepts the proposal of those debts from which the debtor will not be released by an order of discharge.
10. If the scheme is approved the receiving order is rescinded and subject to payment of the official receiver’s costs, the debtor or the trustee under the scheme is put in possession of the property.
11. The scheme may be annulled in the following cases:
(i) if default is made in payments of any instalments due under the scheme; or
(ii) if it appears to the court that the scheme cannot in consequence of legal difficulties or for any sufficient cause proceed without injustice or undue delay to the creditors or the debtor; or
(iii) if the consent of the court was obtained by fraud.
If the scheme is annulled the court may adjudge the debtor bankrupt but any dispositions or payments made under the scheme remain valid.
The creditors may also accept a proposal for a composition or scheme at any time after adjudication. The procedure is the same as in the case of a composition or scheme accepted before adjudication and upon approving the scheme the court may annul the adjudication order. Where the adjudication is annulled any assets remaining after payments to the creditors of the amount owed them under the scheme in respect of which no order has been made reverts in the debtor.