Bankruptcy is the process by which an insolvent individual is made bankrupt and his or her assets are administered for the benefit of his or her creditors. Accordingly, a bankrupt is a person who has been adjudged bankrupt and whose estate is administered by a trustee in bankruptcy for the benefit of the bankrupt’s creditors.
A person is adjudged bankrupt when the court makes a bankruptcy Order against him/her. The bankruptcy Order declares the person bankrupt and appoints the Official Receiver as interim receiver of his/her estate in order to preserve the estate. The bankrupt’s estate then vests first in the Official Receiver and then in the trustee. No transfer documents need to be signed for the estate to vest in the Official Receiver or trustee.
Bankruptcy commences on the day on which the bankruptcy order is made. Within 14 days, the Official Receiver must give a public notice that the bankruptcy has commenced and call the first creditors’ meeting. The creditors’ meeting appoints a trustee and vests the bankrupt’s estate in the trustee.
The principle matter for discussion at a meeting of creditors will be the statement of affairs presented by the debtor. And the debtor must be present at this meeting unless good cause is shown for his absence. At this and subsequent meetings the creditors may agree to a composition or a scheme of arrangement.
In case of a composition, the debtor keeps the assets and pays for them a certain sum to his creditors whereas in a scheme of arrangement, the debtor transfers his assets to a trustee, who then makes payments to creditors.
The third option for the creditors is to agree to ask court to adjudicate the debtor bankrupt. After he/she has realised all the assets of the bankrupt, the trustee in bankruptcy shall distribute the proceeds among the bankrupt’s creditors.