Insolvency

The Insolvency Law, 2018 provides that Business insolvency proceedings commence when the debtor is either unable to pay the debts when they are due or is over-indebted and is not in the position to pay the debts by the due date.

Application

The application for commencement of insolvency proceedings may be carried out by any of the following persons: creditors; debtor; members of the Board of Directors or one of them; or the Registrar General.

A creditor’s application is admissible if he or she has an interest and if he or she shows his or her claim as well as the reason why insolvency proceedings should be commenced. The Court does not appoint an insolvency practitioner if it is manifestly evident that the value of the assets of the debtor is insufficient to cover the costs of the insolvency proceedings.

In such a case the court issues a declaration of debtor’s insolvency and orders the Chief Administrator to carry out the distribution of available assets to creditors.

Content for commencement of insolvency proceedings application

Subject to other laws governing commercial procedures, the insolvency proceedings application must include the following: a detailed list of debts and claims; relevant financial and accounting reports; other elements the applicant court considers necessary and which are linked with his or her application.

What are the effects of the commencement of insolvency proceedings?

Upon the commencement of the insolvency proceedings:

• the commencement or continuation of individual actions or proceedings concerning the assets of the debtor and the rights, obligations or liabilities of the debtor shall be stayed;
• the execution of judgments related to the assets of the debtor’s property shall be stayed;
• the right of counterparty to terminate any contract with the debtor shall be suspended;
• the right to transfer, mortgage or otherwise dispose of any assets of the debtor shall be suspended.

Nevertheless, the Insolvency Law states that the above mentioned effects shall not prejudice the right to institute actions or initiate proceedings against individuals in order to protect a debt owed. The Court may also take an additional decision aimed at easing the measures taken during the commencement of insolvency proceedings.

Secured claims

The Insolvency Law, 2018 provides that rights of secured creditors and holders of the right of retention shall not be stayed by the commencement of insolvency proceedings. However, where the debtor shows the intention to submit a reorganization plan along with the application to commence insolvency proceedings, all claims including secured claims and rights of retention shall be stayed. The debtor must submit to the Court a reorganization plan within three (3) months of the instituting the court case.

The period of stay on secured claims does not exceed six months. The stay on secured claims shall become effective from the date of the application until the court renders the decision thereof. The creditor may petition the court to lift of the stay where there is cause.

Bankruptcy

Bankruptcy is generally designed to help individuals and businesses eliminate all or part of their debt or to help them repay a portion of what they owe.

The court usually makes a bankruptcy order in respect of an individual by the appointment of a trustee who must be an insolvency practitioner. In case the individual is unable to pay his debts, then court may appoint a trustee. The bankruptcy commences and takes effect on the date on which the trustee has consented in writing to the appointment.

Application

An application for a bankruptcy order to be made against an individual is presented to the court by one of the following persons: one of the individual’s creditors or jointly by more than one of them; the individual himself/herself; the supervisor of an arrangement proposed by the individual.

If the application is made by the individual himself, it must be accompanied by a statement of the debtor’s affairs containing such particulars of the debtor’s creditors and of his debts and other liabilities and of his assets as may be prescribed and such other information as may be prescribed.

A bankruptcy application can only be presented to the court if:

• the individual is ordinarily resident in Rwanda;
• the individual is personally present in Rwanda on the day on which the application is made;
• the individual at any time in the period of three (3) years ending with that day has carried on business including as a member of a partnership or through an agent in Rwanda.

The bankruptcy application can only be withdrawn with the leave of the court. The court also has the power to dismiss a bankruptcy application or to stay proceedings on such an application where, it appears to it appropriate to do so on the grounds that there has been a contravention of the law.

Effect of commencement of bankruptcy

On bankruptcy is commenced, the bankrupt’s estate is vested in the trustee, without any conveyance, assignment or transfer. Except with the trustee’s written consent or with the order of the court and in accordance with such terms if any as the court imposes, no proceedings, execution or other legal process may be commenced or continued against the bankrupt or the bankrupt’s estate.

However, a secured creditor still has the right to take possession of and realise or deal with any property in the bankrupt’s estate over which that creditor has a charge.

Termination of bankruptcy

The bankruptcy terminates when a bankrupt is discharged from bankruptcy or the bankruptcy order is annulled. A bankrupt is discharged from bankruptcy, when the court, on an application by the bankrupt makes an order discharging the bankrupt or after the expiration of the period of two years beginning with the commencement of the bankruptcy. On the application of the trustee, the court may order that that continues to run beyond such period or until the fulfilment of such conditions as may be specified in the order. Such an order may only be made on the ground that a bankrupt has failed to comply with any of his or her obligations.

The court must, while considering a bankrupt’s application for discharge, take into consideration the trustee’s report on the bankruptcy and the conduct of the bankrupt during the bankruptcy proceedings and any other matters the court may consider pertinent.

The court may also, as a condition for his or her discharge, require a bankrupt to consent to an agreement being entered against him or her in favour of the trustee for the balance or part of a balance of the debts provable under the bankruptcy which is not satisfied at the date of discharge, or the balance or part of any balance of the debts, to be paid out of the future earnings of the bankrupt or property acquired after the bankruptcy, in such manner and subject to such conditions as the court may direct.