Land Act: Dispositions to prejudice creditors

It may happen that a disposition of an interest in land is made in circumstances that affect the interests of creditors. In their infinite wisdom, our law makers enacted a number of provisions to address such a situation.

Courts in Tanzania have been given powers, under Sections 68-‑72 of the Land Act to make orders that any interest in land acquired or received under or through certain prejudicial dispositions of those interests in land made by a debtor or the value of those interests in land be restored for the benefit of unsecured creditors.

So a buyer of landed property in a prejudicial disposition may end up being ordered to pay compensation to the creditors of a debtor for taking part in a disposition that is prejudicial to the creditors’ interests. Likewise, a debtor who disposes his landed property to defeat the claims of his creditors may be ordered by the court to have the land re‑assigned to him by the purchaser and to hold that land as a trustee for his creditors.

A disposition will be deemed to have been taken to prejudice the creditor, under Section 69(1) of the Land Act [Cap 113, R. E 2002], if it hinders, delays or defeats or it is intended to hinder, delay or defeat the exercise by a creditor of any right of recourse to land or any interest in land in respect of which that disposition has been made in order to satisfy in whole or in part any debt owed to the creditor by the person making the disposition, and that person is unable to pay all his debts without recourse to that land or any interest in it. What the section above means is that where a debtor disposes a landed property in order to hinder, delay or defeat the interest of a creditor, and that debtor is afterwards unable to pay all his debts without the disposed property.

In such a case, a creditor, and any public officer, government department or parastatal body responsible for collecting monies owing to the government or any part of it by any person may apply to the court for an order to set aside a prejudicial disposition.

When an application is made, the court may order a person who acquired or received land under a prejudicial disposition or a person who acquired or received the land through a person who acquired the land under such disposition to pay compensation to the person affected by the prejudicial disposition, or to re‑assign a right of occupancy or a derivative right to the person who made the prejudicial disposition.

The court may also order the debtor who made prejudicial disposition to hold the land restored to him through re‑assignment mentioned herein above to hold the land as a trustee for the benefit of his creditors.

The court may additionally direct the person who made a prejudicial disposition to deal with the land only in accordance with the orders that the court may make for the purposes of enabling the creditors to be paid by the debtor.

However, the court will not make an order for restoration or payment of compensation to a person who acquired the land in good faith and without knowledge of the fact that it has been subject of a prejudicial disposition.

In making an application for reliefs under the provisions stated above, it must expressly be specified in the application the land to which the application relates, the disposition alleged to be prejudicial, and it must be served on all persons involved in the disposition, that is, the person who made the disposition, a person in whose favour the disposition was made, as well as any other person who was, in one way or another, involved in the disposition from whom compensation is sought.

Therefore, creditors whose right to recourse to the landed property of a debtor is defeated by the debtor for disposing the property from which the creditors can resort to satisfy their debts, may move the court under these provisions so as to obtain the reliefs that the laws has made available in such circumstances.

However, if a debtor makes a disposition with the intention of preferring one creditor over the other, these reliefs will not be available to the latter because such a disposition ,in the eyes of the law, is not prejudicial.

It is prudent, therefore, for buyers to obtain the necessary information from the sellers so as not to find themselves forced to relinquish the property they bought or pay compensation to persons affected by their purchase of the property. Creditors can take comfort that the court has the power to assist them to get the property which has been sold by their debtor for the intention of defeating their claims, provided the sale falls within the ambit of prejudicial dispositions as defined in the law. Thus, where such a situation arises, creditors may run to the court and may either seek to set aside the disposition or compensation.

In the upshot, a debtor cannot avoid his liability by disposing his landed property so that his creditors cannot get their hands on it, the provisions of the Land Act discussed in this article, allows creditors to seek court’s intervention in such a situation so as to enable payment of their debts by the debtor who had intended to defraud them.

Dakila Julu is an associate at ABC Attorneys