Bankruptcy is a legal status of an insolvent person or an organization that cannot pay up the debts they owe to creditors. In most jurisdictions, bankruptcy is ordered by a court order or often, initiated by the debtor to be declared bankrupt. In Nigeria, bankruptcy refers to the inability of an individual to pay his debts. A person cannot declare himself bankrupt except by the court after considering a petition brought before it for that purpose. It is only the court that has the power to declare an individual bankrupt. An individual, corporate entity, or organization that does not have enough assets and liability to cover the debts owed is deemed to be bankrupt.


Liquidation Bankruptcy: This is the most common type, and it involves the trustee selling off all non-exempt assets held by the debtor to repay the debts owed by the debtor to the fullest extent. The portion of the debt that remains unpaid through liquidation is discharged. This type can be filed by individuals, companies, and partnerships.

  1.  It involves the debtor filing for bankruptcy but maintaining ownership of all assets and performing normal business activities. The debtor simply tries to work out a reorganization and payment plan to pay off creditors.
  2.  The debtor retains ownership of all assets and goes about with normal business operations and works out a repayment plan to pay off debtors. In this type, some   portion of the debt may be discharged but there are limits on the amount


A person is deemed to be bankrupt when that person is unable to pay the debts owed. The provisions of the Companies and Allied Matter Act (CAMA) 1990 provide that companies cannot be bankrupt but insolvent. On the other hand, Bankruptcy deals with any person who cannot pay his debts of a stated amount and to disqualify the person from holding certain elective and other public offices or from practicing any recognized and regulated profession except those who are employees.


Filing for bankruptcy has to follow a process as stated in the Bankruptcy Act, which involves 9 parts – Part I to Part IX.

Part I: This bothers on the filing of bankruptcy by the debtor, who is then publicly examined, and a committee is set up to handle the proceeding. The property of the debtor is also examined in this part.

Part I1: This involves the proof of debts, where the creditor or debtor will have to show proof of the debt owed and the amount involved is then taken into consideration. The property and assets owned by the debtor that would be used to repay the debts are also considered.

Part Ill and Part IV involve the examining of the official receiver and the trustee.

Part V: This explains the power of the court and the procedure to follow in the proceedings as stated by the constitution.

Part VI bothers on the disobedience to Order of Court either by the debtor or creditor. Part VI discusses the disqualification of bankruptcy and the penalties and offenses associated with it.

Part VIll explains bankruptcy offenses in detail which would include fraudulent debtors, false claims, bankrupt guilty of gambling, bankruptcy and absconding with property, trial and punishment of offenses, and so on.


 Bankruptcy Act is to make provisions for declaring as bankrupt any person who cannot pay his debts of a specified amount and to disqualify him from holding certain elective and other public offices or from practicing any regulated profession (except as an employee). Bankruptcy law is designed to accomplish the main goals: (i) To provide relief and protection to debtors

(ii) To provide again means of distributing a debtor’s assets among all creditors. Thus, the law attempts to protect the rights of debt the debtor and the creditor, this duty of the court to administer the estate of the debtor in bankruptcy. Bankruptcy may be grouped into (a) voluntary bankruptcy and (b) involuntary bankruptcy.

The outline of the Acts of bankruptcy includes when a

debtor commits an act of bankruptcy as stated on the Act in the following cases:

If a creditor

(a) has obtained a final judgment or final order against the debtor for any amount, and execution notice served on him and

(b) does not, within fourteen (14) days after service of the notice, comply with the requirements of the notice or satisfy the court that he has a counterclaim, set off or

cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid, and which he could not set up in the action in which the judgment was obtained or the proceedings in which the order was obtained.

As provided in section 4 of the Bankruptcy Act

  1. It is only the creditor who has been entitled to enforce a final judgment or final order who has obtained a final judgment or final or
  2.  If execution against the debtor has been levied by seizure of his goods under process in an action or proceeding in the court, and the goods have either been sold or held by the bailiff for twenty-one days.
  3. If he files in the court a declaration of his inability to pay his debts or presents a bankruptcy petition against himself.
  4. If he suspends or gives notice that he is about to suspend payment of his debts to any of his creditors, or
  5. If under a credit agreement the creditor becomes entitled to file a bankruptcy petition or
  6. If, in Nigeria or elsewhere, he makes a conveyance or assignment of his property to a trustee for the benefit of his creditors generally or
  7. If, in Nigeria or elsewhere, he makes a fraudulent conveyance, gift, delivery or transfer of his property or any part thereof, with an intent to defeat or delay the claim of his creditors; or
  8.  If, in Nigeria or elsewhere, he makes any conveyance or transfer of his property or any part thereof, or created any charge thereon, which would under this way other Act be void as fraudulent preference if he were adjudged bankrupt; or
  9.  If, wise intent to defeat or delay the claims of his creditors, he departs out of Nigeria, or being out of Nigeria remains out of Nigeria, or departs from his dwelling, or otherwise absents himself or begins to keep house.

Section 28 (1) of the Act provides that at any time after being adjudged bankrupt, apply to the court for an order of discharge and the court shall appoint a day for hearing the application, but the application shall not be heard until the public examination of the bankrupt is concluded. This implies that bankruptcy is not an irredeemable or a permanent condition. The application shall, except when the court in

(a) the company has by a special resolution resolved that the company be wound up by the court.

(b) default is made in delivering the statutory report to the Commission or in holding the statutory meeting.

(c) the number of members is reduced below two

(d) the company is unable to pay its debt.3w

(e) the court is of the opinion that it is just and equitable that the company be wound up. From the Act stated above this article is to present the purposes of Section 408.

(d) above, i.e. where the petition is presented on the ground that the company is unable to pay its debt, then the winding up proceeding is filed in the court for an order of winding up to be made by the Court, he creditor in a winding up proceeding must show that the petition is brought bona fide and based on any one or more of the grounds stated above especially to show how the company is indebted to him or the credit facility granted to the company. Accordance with rules under this Act otherwise directs, be heard in open court.

Section 28 (2) of the Act states that where the bankrupt does not of his own accord within such time as the court may deem reasonable apply for discharge, the court may, of its own motion or on the application of the official receiver or the trustee or any creditor who proved, its case make an order to discharge the debtor in accordance with the provision of the act. Section 31 of the Act further provides that a bankrupt is automatically discharged after the lapse of five (5) years from the date a receiving order was made against him. In other words, it means that after

the expiration of five years an order is made the person is discharge of bankrupt.

It follows from the above that Bankruptcy discharged refers to a court order that ends bankruptcy proceedings as old debts and hence releases the debtor from the responsibility of repaying certain types of debt.


The law is enforceable in Nigeria, but the process of filing is cumbersome and makes bankruptcy almost insignificant. Several lawyers in Nigeria are not conversant with the bankruptcy laws. This can be attributed to the non-application of the law in Nigeria. Due to the high expense rate of filing and going through the proceedings, most clients would prefer to settle their financial issues out of court.

Written by Onya Isioma Victoria & Mmesoma Agu

For: Starlion Legal


  1. Timothy F. Y., Olubayo. O, March 1, 2012, Criminal Law Protection of Property: A Comparative Critique of the Offences of Stealing and Theft in Nigeria, Journal of Politics and Law, Vol. 5, No.1.
  2. Leonard C. O., Livinus I. O., Chinwendu O. O, 18 April 2014, The Legal Regime of Bankruptcy and Winding up Proceedings as a Tool for debt Recovery in Nigeria: An Appraisal, CSCanada, Vol. 10, No. 5, 2014, pp. 61-69.
  3. O.M Atoyebi, SAN, Bankruptcy and Insolvency in Nigeria: Legislative Framework Repercussions & Implementations,,24th June 2022.
  4. Charles Onwuasoanya, Lewis Ray Law, Bankruptcy Law in Nigeria- All You Should Know, 20 January 2022,
  5. Bankruptcy Act CAP 30 Laws of the Federation 1990(as amended).

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