A CRITICAL ASSESSMENT OF DISSOLUTION OF COMPANIES UNDER THE

COMPANIES ACT 2012

BY

OWOMUGISHA HILDA

1153-01024-02564

A DISSERTATION SUBMITTED TO THE SCHOOL OF LAW IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE

AWARD OF THE DEGREE OF BACHELOR OF LAWS OF

KAMPALA INTERNATIONAL

UNIVERSITY

OCTOBER 2019
 DECLARATION

I Owomugisha Hilda registration number 1153-01 024-02564; declare that the content of this

research report is purely my original work, unless otherwise quoted. To the best of my

knowledge, the same work has never been submitted, for any degree or award.

Acknowledgement has been duly made by way of footnotes.

~··················· DATE .....:t-::-. .1.0.:":~0..1.9 ....... .

SIGN ...

OWOMUGISHA HILDA

1153-01024-02564
 APPROVAL

I certify that this Research has been submitted for examination with my approval as university

supervisor.

SIG~ ~ ~
....... ..... ...... .. DATE...... e&.!.r.f!.r.\~·· · · ·
DR MBELI VALENTINE

(SUPERVISOR)

ii
 DEDICATION
I dedicate this research report to my Mother, brothers and sister for their moral and physical
support throughout my education level.

iii
 ACKNOWLEDGEMENT

I would like to gratefully acknowledge the contribution of several people who have helped me in
completing this dissertation. First and foremost, praise to God, whose blessings and guidance has
helped me through the completion of this study

I am very grateful to all the academic staff of the School of Law Kampala International
University most especially my Supervisor Dr Mbeli Valentine for his guidance throughout this
research, Thank you so much for being patient with me, being available whenever I needed your
support, constructive criticism, supervision, and continued encouragement.

iv
 Table of Contents

DECLARATION ............................................................................................................................. i

APPROVAL ................................................................................................................................... ii

DEDICATION ............................................................................................................................... iii

ACKNOWLEDGEMENT ............................................................................................................. iv

LIST OF CASES ......................................................................................................................... viii

LIST OF STATUTES .................................................................................................................... ix

ABSTRACT .................................................................................................................................... X

CHAPTER ONE ............................................................................................................................. I

GENERAL INTRODUCTION ....................................................................................................... I

1.1 Background to the Study ........................................................................................................... I

1.2. Statement of the problem ......................................................................................................... 6

1.3. Research questions ..................................................................... _. ............................................ 7

1.4 Objectives of the study ........................................................................................................ 7

1.5 Scope of the Study .................................................................................................................... 8

1.6 Significance of the study ........................................................................................................... 8

1.7 Research Methodology ............................................................................................................. 9

1.8. Literature Review .................................................................................................................... 9

1.9. Organizational layout.. ........................................................................................................... 12

v
CHAPTER TWO .......................................................................................................................... l3

LEGAL FRAMEWORK FOR DISSOLUTION OF COMPANIES IN UGANDA .................... 13

2.0 Introduction ............................................................................................................................. 13

2.1 Companies Act 2012 ............................................................................................................... 13

2.1.1 Voluntary winding up .......................................................................................................... 13

2.2 Insolvency Act 2011 ............................................................................................................... 15

2.2.1 Voluntary liquidation ........................................................................................................... 15

2.2.2 Liquidation subject to supervision by court......................................................................... 19

2.2.3 Liquidation by coutt............................................................................................................. 20

2.3 N.S.S.F Act Cap 222 ............................................................................................................... 23

2.4 Income Tax Act Cap 340 ........................................................................................................ 23

2.4 Employment Act 2006 ............................................................................................................ 24

2.5 Common law principles ................ :........................................................................................ :24

CHAPTER THREE ...................................................................................................................... 30

CIRCUMSTANCES UNDER WHICH A COMPANY MAY BE DISSOLVED UNDER

UGANDAN LAW ........................................................................................................................ 30

3.0 Introduction ............................................................................................................................. 30

3.3.1 Inability to pay debts ............................................................................................................ 34

CHAPTER FOUR ......................................................................................................................... 43

LEGAL CONSEQUENCES OF DISSOLUTION OF A COMPANY IN UGANDA ................. 43

vi
4.0 Introduction ............................................................................................................................. 43

4.1 Order of settlement of claims .................................................................................................. 43

4.2 Consequences of dissolution of a company............................................................................ 49

4.2.1 Consequences to Shareholders ............................................................................................. 52

4.2.2 Consequences to Creditors ................................................................................................... 52

4.2.3 Consequences to the dissolved companies' staff.................................................................. 52

4.2.4 Consequences of proceedings against the company ............................................................ 53

4.2.5 Consequences as to documents ............................................................................................ 53

4.2.6 Consequences to customers ................................................................................................. 54

4.2.6 Consequences to the business and status of the Company .................................................. 56

CHAPTER FIVE .......................................................................................................................... 57

CONLUSION ............................................................................................................................... 57

5.1 Summary .................................................................................. :.............................................. 57

5.2 Findings .................................................................................................................................. 58

5.3 Recommendations ................................................................................................................... 59

References ..................................................................................................... 61

vii
 LIST OF CASES
Montpelier v Lombard Manx [20 15]
Williams v. Clark Sand Company, Inc
Oklahoma Nat. Gas Co. v. State of Oklahoma, 273 U.S. 257, 259-60,47 S.Ct. 391, 392, 71
Theta Props. v. Ronci Realty Co., 814 A.2d 907, 910, 912 (R.I.2003)

viii
 LIST OF STATUTES
Companies Act 2012
Insolvency Act, 2011
Income Tax Act Cap 340
Employment ACT 2006
The Judicature Act Cap 13
NSSF Act Cap 222

ix
 ABSTRACT.
The main objective of this study was to identifY and analyze the laws relating to winding up of
companies in Uganda. The study reviewed dissolution of a company in Uganda from 2011 to
date. The study found out that various statutes in Uganda constitute the legal framework for
dissolution of companies in Uganda. The study fitrther found out that the insolvency Act 2011 is
the major law governing liquidation in Uganda. The study concluded that even though the
companies Act 2012 provides for Voluntary winding up of a company and the Insolvency Act
2011 also provides for Voluntary liquidation but in different scenarios. This creates a coriflict in
the laws because Uganda lacks a clear procedure governing voluntary winding up/liquidation of
companies. The study recommended that before declaring a company insolvent, there should be
prior assessment of the impact its dissolution will have to different stake-holders in the company
and as such precautions should be taken in order to reduce or eliminate resulting consequences,
for example loss of jobs, damage to business name, loss of business status through losing
customer.

X
 CHAPTER ONE

GENERAL INTRODUCTION

1.1 Background to the Study

In Uganda, a company incorporated or registered under the Companies Act may be dissolved or

deregistered in different ways and for different reasons. Some common reasons are financial

difficulties or disagreements among the members. The process of closing down a company and

having it deregistered is called 'winding up' 1• There are two modes of winding up of a company

in Uganda: by the Court (compulsory), by the members (voluntary). When a company is solvent

and capable of paying its liabilities in full; the members may, by special resolution, decide to

voluntarily wind up the business of the company. A declaration of solvency, stating that the

company is capable of paying its debts in full, is mandatory for a voluntary dissolution2 .

A company is a legal entity formed by a group of persons to engage in and operate a business. A

company may be organized in various ways for tax and financial liability purposes depending on

the cqrporate law of its jurisdiction. The line of business_ the company is in will generally

determine which business structure it chooses, for example a partnership, a proprietorship, or a

corporation3 . The Companies Act defines a company as a company formed and registered under

the Act, or an existing company or a re-registered company under the Companies Act4 . The

persons who contribute the money /capital of the company are its members. Their contribution is

the capital of the company.

1
Under the Companies Act, (Act No. 1 of 2012),
2
Sec. 268-272 of the Companies Act 2012
3
Black's Law, 9th Edition. 1 (9 ed.). St. Paul, Minnesota: West Publishing, Inc. p. 318. ISBN 9780314199492.
Retrieved 20 Apr 2019.
4
Section 2 of Companies Act 2012

1
A company registered under the Companies Acts becomes a body corporate as and from the date

mentioned in the certificate of incorporation;. Incorporation under the Companies Acts carries

with it a number of significant consequences, some of which are set out in6 which, perhaps

vaguely, provides: 'From the date of incorporation mentioned in the certificate of incorporation,

the subscribers of the memorandum agree to form a company together with such other persons as

may from time to time become members of the company, shall be a body corporate with the

name contained in the memorandum, capable forthwith of exercising all the functions of an

incorporated company, and having perpetual succession and a common seal, but with such

liability on the part of the members to contribute to the assets of the company in the event of its

being wound up 7 •

The registration of a company also known as 'incorporation' brings the company into existence. 8

At the end of its doing business, a company may also be deregistered or dissolved. 9 A

deregistered/dissolved company ceases to exist. 10 Theoretically, while both deregistration and

dissolution have the effect of terminating the legal existence of a company, their consequences

are different. 11 Where a company is dissolved, the liability of the directors, members and officers

5
Section 18(2) of theCA 1963.
6
s 18(2) of theCA 1963
7
Akomolede, T. 1., & Yebisi, E. T. (201S). A Critic of the Legal Framework for the Incorporation of Co-operative
Societies in Nigeria. JL Pol'y & Globalization, 39, 16.
8
Susan Mclaughlin Unlocking Company Law (Routledge, 5 Mar 2015)15; also see The Companies Act No. 17 of
2015 section 5.19(a)
9
Stephen Bottomley, Kath Hall, Peta Spender, Beth Nasworthy Contemporary Australian Corporate Law
(Cambridge University Press, 8 Nov 2017)464
10
Ratan Nolakha Company Law and Practice (Vikas Publishing House)5.14
11
Allen West DEREGISTRA T/ON OF COMPANIES AND CLOSE CORPORA T/ONS VIS-A-VIS THE DISSOLUTION OF
COMPANIES AND CLOSE CORPORATIONS AND THE EFFECT THEREOF ON CONVEYANCING MATTERS<
http://www.macrobert.eo.za/News-Biog/Biog/DEREGI5TRATION-EFFECT-CONVEYANCING-MATTERS> accessed 22
March

2
ceases. 12 With deregistration however, such liability does not cease to exist. 13 Notwithstanding

deregistrationldissolution, a deregistered/dissolved company may also be reinstated. 14

The law on winding up of companies is governed by the companies Act and winding up rules.

Winding up basically means liquidation of a company. It is process by which the company's

life is brought to an end and its property managed for the benefit of its creditors and members. It

involves an operation of putting to an end the transactions of the company, realizing the assets

and discharging its liabilities.

The Insolvency Act 15 , repealed parts of the Companies Act relating to winding up. However,

member's voluntary winding up is still reproduced in the Act 16 . The definition section of Act 17

in defining 'members' voluntary winding up' refers one to the definition of member's voluntary

winding up in the Insolvency Act as the law governing insolvency in Uganda. The Uganda

Insolvency Act was assented to on 8th August, 2011 and came into force on the same day as the

Companies Act 18 . It amends and consolidates all laws relating to insolvency. It repeals the

Bankruptcy Act 19, the Deeds of Arrangement Act20 and parts VI (Winding up), VII (Receivers

and ·Managers) and IX (Winding up of unregistered companies) of the Companies Act21 . The

Insolvency Act now governs how receivership, administration, liquidation, arrangements and

12
ibid
13
ibid
14
The Companies Act No. 17 of 2015 Section 912
15
Insolvency Act, 2011
16
Act 1 of 2012
17
Act 1 of 2012
18
Companies Act 1 of 2012
19
Bankruptcy Act (Cap. 67
20
Deeds of Arrangement Act (Cap. 75)
21
Companies Act (Cap. 110).

3
bankruptcy shall be handled in Uganda 22 • It provides that where a company has passed a

resolution for voluntary winding up, the provisions of the Insolvency Act23 shall apply.

Voluntary winding up does not pose significant challenges in the guaranteed ability of the

company to meet its liabilities.

On the other hand involuntary winding up, which is mostly triggered by inability to meet

scheduled financial obligations can result in strains and tension on how assets of a company

should be distributed in winding up.

Basically all shares rank equally and therefore if some shares are to have any priority over the

others; there must be provision to this effect in the regulations under which these shares were

issued. Where the articles are silent on this, it poses a problem. The Atiicles being silent on the

issue, the question is on what principle should the surplus be distributed among the preference

and ordinary shareholders? The ordinary shareholders may argue that they are entitled to all the

surplus. Alternatively the division ought to be made according to the capital subscribed and not

the amount paid on the shares 24 . It has been held that once the capital has been returned to the

shareholders, they thereafter b.ecome equal and therefore the distribution of the surplus assets

should be made equally between the ordinary and preference shareholders.

However if the shares are expressly divided into separate classes thereby rebutting the presumed

equality, it is a question of construction in each case what the rights of each class are25 . Hence if

nothing is expressly said about the rights of one class in respect of either dividends, return of

capital or attendance and voting at meetings, then that class has the same rights in that respect as

the other shareholders. The fact that a preference is given in respect of any of these matters does

22
Section 272 of the Companies Act 1 of 2012
23
SUPRA NOTE 24
Peterson, c. A., & Hawker, N. w. (1997). Does Corporate Law Matter-Legal Capital Restrictions on Stock
24

Distributions. Akron L. Rev., 31, 175.

25
Minow, M. (1990). Making all the difference: Inclusion, exclusion, and American law. Cornell University Press.

4
not imply that any right to preference in some other respect is given e.g. a preference as to

dividends will not imply a preference as to capital i.e. the shareholders enjoy only such

preference as may be expressly conferred upon them.

If however, any rights in respect of any of these matters are expressly stated, the statement is

presumed to be exhaustive so far as that matter is concerned. For instance the preference

dividend is preswned to be non-participating in regard to other dividends?6 In this regard, Justice

Wynn Parry stated "the effect of the authorities as now in force is to establish two principles.

First that in construing an article which deals with the rights to share all profits, that is dividend

rights and rights to shares in the company's property in liquidation, the same principle is

applicable and secondly that principle is that where the articles sets out the rights attached to a

class of shares to pmiicipate in profits while the company is a going concern or to share in the

property of a company in liquidation, prima facie the rights so set out are in each case

exhaustive27 ."

Where a preferential dividend is provided for it is presumed to be cumulative for instance if no

preferential dividend is declared the arrears of dividend .are carried forward and must be paid

before any dividend is paid on the other shares. But this presumption may be rebutted by words

tending to show that the shares are not intended to be cumulative or words indicating that the

preferential dividend is only to be paid out of the profits of each year i.e. if the company sustains

any financial loss during any year, there will be no dividend for that year 28 . Even then

preferential dividends are payable only if and when declared. Therefore arrears of cumulative

dividends are not payable on winding up unless the dividend has been declared.

26
Re Isle ofThanet Electricity Supply Co. (1950) Ch. 1951
27
Means, G. (2017). The modern corporation and private property. Routledge.
28
Means, G. (2017). The modern corporation and private property. Routledge.

5
 Where the Registrar reasonably believes that a company is not carrying on business or is not in

operation, 29 the Registrar may then send to the company by post, a letter inquiring whether the

company is carrying on business or is in operation. 30 If the correspondence indicates that a

company is not in operation, the registrar may strike off the company from the register and the

company will be dissolved. 31

In all, the issue of how to ensure the orderly distribution of surplus at winding up and more

importantly how to meet the claims of interested stakeholders is very crucial.

1.2. Statement of the problem

The Companies Ace 2 gives the High Court jurisdiction to wind up any company registered in

Uganda. Such Dissolution may only take place under the conditions under Companies Ace 3. The

process of closing down a company and having it deregistered is called 'winding up'. Under the

Companies Act34 , there are two modes of winding up of a company in Uganda: By the court

(compulsory), by the members (voluntary). The possible limitation is that stated under the Ace 5.

Here the court has a discretiO!l not to grant the winding up order where it is of the op!nion that an

alternative remedy is available to the petitioners and that they are acting unreasonably in seeking

to have the company wound up instead of pursuing that other remedy.

In any winding up those in need of protection are the creditors and the minority shareholders.

Where it is proposed to wind up a company voluntarily, the Companies Act requires the directors

29
ibid S.894(1).
30
ibid
31
S.894(3)(b).
32
Section 218 of the Companies Act.
33
section 219
34
Act No . 1 of 2012
35
Section 22(2) of the Act

6
to make a declaration to the effect that they have made a full inquiry into the affairs of the

company and having so done have found the company will be able to pay its debts in full within

such period not exceeding one year after the commencement of the winding up as may be

specified in the declaration. Such declaration suffices as a guarantee for the repayment of the

creditors. If the directors are unable to make the declaration, then the creditors will take charge

or the winding up proceedings in which case they may appoint a liquidator. Where a liquidator is

appointed, it becomes important to ascertain the order in which a company's liabilities will be

settled. This is by far the contentious issue in the winding up of companies.

1.3. Research questions

1. What is the legal framework for the dissolution of companies in Uganda?

11. What are the grounds and circumstances under which a company may be dissolved?

iii. What are the legal consequences of dissolution of a company in Uganda?

1.4 Objectives of the study

The objectives of the study are divided into general and specific objectives.

1.4.1 General objective

The main objective of this study is to identify and analyze the laws relating to winding up

of companies in Uganda.

1.4.2 Specific objectives

1. To discuss the legal framework for dissolution of companies in Uganda.

u. To discuss the circumstances under which a company may be dissolved under Ugandan

law.

7
 iii. To discuss the legal consequences of dissolution of companies in Uganda.

1.5 Scope of the Study

The scope of the study is divided into geographical, temporal and content scope.

1.5.1 Geographical scope

The study is limited to Uganda. However, references could be made to other jurisdictions with

more persuasive standards.

1.5.2 Temporal scope

The study will review dissolution of a company in Uganda from 2011 to date. The choice of this

date is linked to the Insolvency Act, 2011 and the Companies Act, 2012.

1.5.3 Content scope

The study will assess the dissolution of companies under the Companies Act 2012 and the

Insolvency Act.

1.6 Significance of the study

Investors may use this information in understanding the Insolvency Regulations, 2013. And how

one can petition comi to wind up a company if it cannot pay its debts or has failed to honor a

statutory demand.

This research may be relevant to stakeholders for example it shows how Section 270 of

Companies Act 2012 provides for the effect of voluntary dissolution, i.e., it ceases to carry on the

business. A company can also be wound up by court and the official receiver and the liquidator

8
all have functions and duties in relation to the dissolution. This will help shareholders know

effects of voluntary winding up to a company thereby making better informed decisions.

The study will be of importance to stakeholders in the various companies to know the various

causes of dissolution in their companies.

1.7 Research Methodology

This study was basically doctrinal. It is mainly desktop research and this included review of

primary sources like statutes such as Companies Act 2012, Insolvency Act 2011 , and secondary

sources such as text books and journal articles. The researcher accessed materials, data from

statutory bodies and specialized institutions and relevant government ministries.

1.8. Literature Review

According to daily monitor36 the number of companies winding up in Uganda are on the rise. But

why would a country that is very good at starting businesses be the first to bury them? The

reasons are many with Private Sector Foundation Ug_anda saying that business people lack the

knowledge and grit critical for business success 37 . Some businesses are closing because owners

are abandoning an idea or an expected deal failed to materialise 38 . Management issues, external

factors such as hard economic times and indebtedness are eating up these businesses 39. Uganda

36
Daily monitor 9/11/2018 https://www.monitor.co.ug/Business/Commodities/Company-closure-increases---
URSB/688610-4843136-acca2f/index.html(accessed 4/july/2019)
37
Kamara, Y. {2004). Keys to successful cultural enterprise development in developing countries. Unpublished
paper prepared for The Global Alliance for Cultural Diversity, Division of Arts and Cultural Enterprise, Paris:
UNESCO.
38
Kotler, P., Kartajaya, H., & Young, S. D. {2004) . Attracting investors: a marketing approach to finding funds for
your business. John Wiley & Sons
39
Berger, A. N., & Udell, G. F. {1998). The economics of small business finance: The roles of private equity and debt
markets in the financial growth cycle. Journal of banking & finance, 22{6-8), 613-673.

9
Registration Services Bureau (URSB) reports that companies shutting down because of the

former reasons are many and for the latter (insolvency) are fewer but real.

Several businesses have run into trouble, forcing them to shut down yet their end could have

been avoided. Taking Uganda Telecom's case, Eronie Kamukama explains how a business on

the verge of collapsing can be salvaged40 •

According to the daily monitor journal by Ntale 41 the downside is that for some contracts,

insolvency can be reason for termination. This spills over even in the Public Procurement and

Disposal of Public Assets Act which excludes insolvent entities though some insolvency

practitioners believe this should only apply if a company is headed for liquidation. Internally, if a

company is placed under administration, it is possible that it could slide into liquidation

especially when proposals presented to creditors are fruitless.

According to Ntale pressure from Uganda Revenue Authority (URA), among other factors, has

been one of the triggers for increased closures. "URA is causing an impact on dormant

companies because if you have ever paid tax, URA keeps sending notices to pay tax. So when

someone comes to us, we tell them to formerly close it and give a certification so URA stops the

notices,"

The closures cut across all sectors but Mr Ntale said it has been more pronounced in the retail

stores sector with the closure oflarge retailers such as Uchumi and Nakumatt.

40
Gallagher, M. (2003). Business continuity management: How to protect your company from danger. Prentice
Hall.
41
Ntale, Daily monitor 20/11/2018

10
Meanwhile, the number of people who applied for individual bankruptcy grew from one in 2017

to three in 2018, according to URSB statistics.

According to Gideon Badagawa, the Private Sector Foundation Uganda executive director,

companies are not just faced with high costs of doing business but are having internal cha

llenges. "The problem with the private sector is that everyone wants to do business regardless of

whether they are able or ready. Not anyone can make money, it will be made by the organized,"

he said, noting that issues such as interest rates and poor financial projections have been a major

factor that have distorted business.

Uganda has slipped further in the ease of Doing Business report by the World Bank, dropping to

127 out of 190 countries on indices such as access to credit, starting a business, paying taxes,

cross-border trade or connect electricity.

Badagawa attributed 2018's performance at 122 out of 190 countries to improvement in payment

of taxes, business startup because of the One-Stop centre and credit access. However, he pointed

out difficulties in electricity connectivity and insolvency processes.

11
1.9. Organizational layout
This

Chapter one is divided into five chapters with the foregoing constituting an introductory chapter

of this research mainly dealing with the background of the study, statement of the problem,

objectives, significance of the study, scope of the study, methodology of the study, literature

review and lastly synopsis.

Chapter two consists of a review of the legal framework for dissolution of companies in Uganda.

Chapter three gives the circumstances under which a company may be dissolved under Ugandan

law.

Chapter four provides a discussion of legal consequences of dissolution of companies in Uganda.

Chapter five basically consists of conclusions drawn from the study and recommendations.

12
 CHAPTER TWO

LEGAL FRAMEWORK FOR DISSOLUTION OF COMPANIES IN UGANDA

2.0 Introduction
A company is defined under the companies act 42 to mean a company formed and registered

under the Act or an existing company or a re-registered company under the Act.. Dissolution

ends the legal personality of a company and tetminates the relationship between a company and

its members. There are various legislations that provide for dissolution of companies in Uganda

and they include;

2.1 Companies Act 2012

The Companies Act43 provides for dissolution of companies in Uganda.

2.1.1 Voluntary winding up

A company may by special resolution resolve to be wound up voluntarily. A voluntary winding

up of a company shall be taken to commence at the_ time of the passing of the resolution44 ,

Where a company passes a resolution for voluntary winding up, it shall, within fourteen days

after passing the resolution, give notice of the resolution in the Gazette and in a newspaper with a

wide national circulation in the official language. The resolution for voluntary winding up shall

be registered with the registrar and a copy sent to the official receiver within seven days from the

42
section 2 of the companies act
43
Companies Act 2012
44
section 268 Companies Act 2012

13.
date of passing the resoh1tion 45 .Voluntary winding up can be through members' voluntary

winding np or creditor's voluntary winding up.

Where it is proposed to wind up a company voluntarily, the directors of the company or, in the

case of a company having more than two directors, the majority of the directors may at a meeting

of directors make a declaration in the prescribed form to the effect that they have made a full

inquiry into the affairs of the company and that, having done so, they have formed the opinion

that the company will be able to pay it's debts in full within a period not exceeding twelve

months from the commencement of the liquidation as may be specified in the declaration, 46

Under Companies Act47 Where a company passes a resolution for the voluntary winding up of

the company in accordance with this Act, the provisions of the Insolvency Act 48 relating to

liquidation shall, with the necessary modifications apply to the voluntary winding up of the

company. In the matter of the financial institutions act and in the matter of an application for

leave for voluntary winding up by imperial investments finance ltd this application was brought

under the Financial Institutions Act49 , Order LII, Rules 1 and 9 of the Civil Procedure Rules (S-

71-1) and Section 98 of the Civil Procedure Act50 for leave to voluntarily wind up the operations

of the applicant company.

45
section 269 Companies Act 2012
,
46
section 271(1)
47
section (272 Companies Act 2012)
48
Insolvency Act 2011
49
Section 98(1) of the Financial Institutions Act, No. 2 of 2004;
50
Section 98 of the Civil Procedure Act (Cap 71)

14
2.2 Insolvency Act 2011
Under insolvency Act51 , a debtor is presumed to be unable to pay the debtor's debts if:the debtor

has failed to comply with a statutory demand, the execution issued against the debtor in respect

of judgement debt has been returned unsatisfied in whole or in part or all or substantially all the

property of the debtor is in the possession or control of a receiver or some other person enforcing

a charge over that property.

On a petition to the court for the liquation of a company or bankruptcy order, evidence of failure

to comply with a statutory demand by the creditor shall not be admissible as evidence for

inability to pay debts unless the application is made within thirty working days after the last date

for compliance with the demand, 52 A petition to the court for the liquidation of a company or

bankruptcy order on the ground for inability to pay debts, may be made by a contingent or

prospective creditor only with the leave of the court; and the court may give such leave, with or

without conditions, only if it is satisfied that a prima facie case of inability to pay debts has been

made out. 53

The insolvency Act Provides for three modes of dissolution of Companies in Uganda namely;

Voluntary Liquidation, Subject to Supervision by Court and by Court Order.

2.2.1 Voluntary liquidation

A company may be liquidated voluntarily if the company resolves by special resolution, that it

cannot by reason of its liabilities continue it's business and that it is advisable to liquidate.

51
section 3
5
\ection 3(2) Insolvency Act 2011)
53
section 3(5)1nsolvency Act 2011)

15
Voluntary liquidation shall be taken to commence at the time of passing the resolution for
54
voluntary liquidation,

Where a company passes a resolution for voluntary liquidation, it shall, within fourteen days

after passing the resolution give notice of the resolution in the Gazette and in a newspaper in the
55
official language with a side national circulation, The resolution for voluntary liquidation shall

be registered with the registrar and a copy sent to the official receiver within seven days from the
56
date of passing the resolution,

Voluntary liquidation can be through members voluntary liquidation or by creditors voluntary

liquidation. Under insolvency Act 57 the company shareholders, by special resolution or the

directors or any other person authorized by the memorandum and articles of association, may

appoint one or more liquidators for the purposes of liquidating the affairs and distributing the

assets of the company and may fix the remuneration to be paid to the liquidator.

On the appointment of a liquidator58 , all powers of the directors shall cease, except where the

company in a general meeting or the liquidator sanctions the continuance of-those powers.

As soon as the company is fully liquidated 59 , the liquidator shall prepare an account of the

liquidation showing how the liquidation was conducted and how the property of the company

was disposed of and call a general meeting of the company to present the account and to give any

required explanation. The meeting shall be called by a notice in the gazette and in a newspaper of

wide circulation in Uganda, specifying the time, place and the objective of the meeting,

54
section 58 Insolvency Act 2011)
55
section 59(1 insolvency Act 2011)
56
section 59(2) Insolvency Act 2011)
57
section 62
58
section 62(2)
59
section 67

16
published at least thirty days before the meeting. Within fourteen days after the meeting the

liquidator shall send a copy of the account to the registrar and make a return Of the meeting and

of its date to the registrar, and if the copy of the account is not sent or the return Of the meeting

is not made in accordance with this subsection, the liquidator shall be liable to a fine not

exceeding five currency points for every day during which default continues.

Where a liquidator calls a meeting in accordance 60 with insolvency Act 61 shall apply to the

liquidation of the company as if the liquidation were a creditors voluntary liquidation and not a

members voluntary liquidation, but that the liquidator shall not be required to call a meeting of

creditors under insolvency Act 62 at the end of the first year of the commencement of the

liquidation unless the meeting held under insolvency Act 63 is held more than three months before

the end of that year.

Under the Insolvency Act64 for the creditors voluntary liquidation the company shall cause a

meeting of the creditors of the company, to be summoned on the same day as the meeting for the

resolution for liquidation is to be proposed or on the following day and send to the creditors

notices for the meeting of the creditors of the company, together with the notices for the meeting

for proposing the resolution for liquidation. The notice for the meeting of the creditors shall be

advertised once in the gazette and in the official language in a newspaper of wide circulation in

Uganda. Where the meeting of the company at which the resolution for voluntary liquidation is

to be proposed is adjourned and the resolution is passed at an adjourned meeting, any resolution

60
section 68
61
insolvency Act 6S,section 66 and 67 shall not apply, and section 76 and 77
62
insolvency Act section 76
63
section 65
64
section 69 of the Insolvency Act 2011

17
passed at the meeting of the creditors held shall have effect as if it has been passed immediately

after the passing of the resolution for liquidating the company.

Under section 70 the creditors and the company at their respective meetings may nominate a

person to be liquidator for the purpose of liquidating the affairs and distributing the assets of the

company, and if the creditorsand the company nominate different persons, the person nominated

by the creditors shall be the liquidator and if the creditors do not nominate any person, the person

nominated by the company shall be the liquidator.

Under Insolvency act 65 as soon as the company is fully liquidated, the liquidator shall prepare an

account of the liquidation, showing how the liquidation was conducted and how the property of

the company was disposed of; and call a general meeting of the company and a meeting of the

creditors of the company, to present the account and to give any required explanation. If the

liquidator fails to call a general meeting of the company or a meeting of the creditors as required

he or she commits an offence and is liable on conviction to a fine not exceeding fifteen cmTency

points.

The Act66 apply to both members and creditors voluntary liquidation. subject to the provisions of

the Act67 on preferential payments, the assets of a company shall, on its liquidation, be applied in

satisfaction of its liabilities simultaneously and equally, and, subject to that application, shall

unless the articles of association otherwise provide, be distributed among the members according

to their rights and interests in the company.

55
section 77
56
section 78 of the Act both section 79 and 86
;, section 79 subject to the provisions of the Act

18
2.2.2 Liquidation subject to supervision by court.
Under section 87 where a company passes a resolution for voluntary liquidation, the court may

make an order that the voluntary liquidation shall continue, subject to the supervision of court

and with the liberty for the creditors, contributories or other interested persons, to apply to court

and generally on such terms and conditions as the court may think just.

An application for the continuance or a voluntary liquidation subject to the supervision of the

court shall, for the purpose of giving jurisdiction to the court over actions, be taken to be a

petition for liquidation by the court68 ,

Where an order is made for liquidation subject to supervision, the court may by that order or any

subsequent order appoint an additional liquidator. A liquidator appointed by the court under this

section shall have the same powers, be subject to the same obligations and in all respects be in

the same position as if he or she had been duly appointed under this Act with respect to the

appointment of liquidators in a voluntary liquidation. The court may remove any liquidator

appointed by the court or any liquidator continued under the supervision order and fill any
69
vacancy occasioned by the removal or by the Cleath or resignation,

Under section 90 where an order is made for liquidation subject to supervision, the liquidator

may, subject to any restrictions imposed by the court, exercise all his or her powers without the

sanction or intervention of the court, in the same manner as if the company were being liquidated

voluntarily. Where the order for liquidation subject to supervision is made in relation to a

creditors voluntary liquidation in which a committee of inspection has been appointed, the order

shall be taken to be an order for liquidation by the court for the purpose of section 71 .

68
section 88)
"section (89)

19
2.2.3 Liquidation by court
Under section 91 the jurisdiction in liquidation matters shall be exercised by the High court. The

court may appoint a liquidator on the application of the company, a director of the company, a

shareholder of the company, a creditor of the company, a contributory or the official receiver.

The court may make an order, if it is satisfied that the company is unable to pay it's debts within

in the meaning of section 3.

On hearing a liquidation petition the court may dismiss it, or adjourn the hearing conditionally or

unconditionally, or make any interim order or any other order that it thinks fit, but the court shall

not refuse to make a winding up order on the ground only that the assets of the company have

been mortgaged to an amount equal to or in excess of those assets or that the company has no

Where, before the presentation of a petition for the liquidation of a company by the court, a

resolution is passed by the company for voluntary liquidation, the liquidation of the company

shall be deemed to commence when the resolution is passed and unless the court, on proof of

fraud or mistake,- thinks fit and directs, all proceedings of the voluntary liquidation shall be taken

to be valid. In all other cases, liquidation of a company by the court shall be taken to commence

at the time of presentation of the petition for liquidation.

Under section 94 the order made under section 92 shall appoint the official receiver or any

insolvency practitioner the court considers fit as provisional liquidator of the company, for the

preservation of the value of the assets owned or managed by the company. The provisional

liquidator shall, have the powers to sell or dispose of any perishable and any other goods, the

70
(section 92(3)

20
value of which is likely to diminish if they are not disposed of, unless court limits the powers or

places conditions on the exercise of the powers.

The provisional liquidator shall, within fourteen days after the commencement of the liquidation

give public notice of the date of commencement of the liquidation and call a shareholders
. 71
meetmg

Under section 96 the liquidator shall, within five working days after his or her appointment give

notice in the gazette and a newspaper of wide circulation of the date of commencement of the

liquidation, the liquidators full name, the liquidator's physical office address and daytime

telephone number and deliver to the official receiver a copy of the notice. A liquidator shall give

notice of the liquidation on every invoice, order for goods or business letter issued by or on

behalf of the company in which the company's name appears stating after the company's name

the words "in liquidation ";and otherwise, when entering into any transaction or issuing any

document by or on behalf of the company.

Section 97 provides that at the commencement of liquidation the liquidator shall take custody

and control of the company's property, the officers of the company shall remain in office but

cease to have any powers, functions or duties other than those required or permitted to be

exercised by this Act, proceedings, executions or other legal process shall not be commenced or

continued and distress shall not be levied against the company or it's property, shares of the

company shall not be transferred or other alteration made in the rights or liabilities of any

shareholder and a shareholder shall not exercise any power under the company's memorandum

and article's of association or the Companies Act and the memorandum and article's of

71
.(section 95)

21
association of the company shall not be altered, except that the liquidator may change the

company's registered office or registered postal address.

Before the expiry of forty working days after the commencement of the liquidation or during a

longer period as the court may allow, a liquidator shall prepare a preliminary repmi showing The

State of the company's affairs, proposals for conducting the liquidation and the estimated date of

its completion; and the right of any creditor or shareholder to require the liquidator to call a
. . 72
ere dttors meetmg,

Before the completion of the liquidation 73 , a liquidator shall, give public notice of the final

report, final accounts and the grounds on which a creditor or shareholder may object to the

removal of the company from the register under the Companies Act. The liquidator shall make

the report available at his or her address for inspection upon payment of a prescribed fee, by

every known creditor, shareholder or contributory. The liquidator shall publish the notice in the

official language in a newspaper of wide circulation in Uganda and shall send a copy of the

report to the registrar and the official receiver.

The liquidation of a company shall be complete when the liquidator delivers to the official

receiver a final report and final accounts of the liquidation and a statement indicating that all

!mown assets have been disclaimed, realised or distributed, all proceeds of realisation have been

distributed and in the opinion of the liquidation, the company should be removed from the

register. On delivering to the official receiver the documents referred to in subsection(!) the

liquidator shall cease to hold office, but this section does not limit the application of section 117

or 118.

72
section 69 (section 102)
73
section 104

22
2.3 N.S.S.F Act Cap 222
Under the N.S.S.F Ace4 , when a member of the fund is adjudged bankrupt and a receiving order

is made for the protection of the estate of that member of the fund 75 , any contribution for him or

her to the fund under this Act shall not vest in the official receiver but his or her share shall

continue to be deducted in full from his or her wages by his or her employer; and no sum of

money in his or her account or benefit paid out of that account shall pass to any trustee or other

person acting on behalf of his or her creditors.

2.4 Income Tax Act Cap 340

The Act76 defines a company to mean a body of persons corporate or unincorporated whether

created or recognised under the law in force in Uganda or elsewhere, and a unit trust, but doesn't

include any other trust or a partnership 77 •

A company is a resident company for a year of income if it is incorporated or formed under the

laws of Uganda78 , has its management and control exercised in Uganda at any time during the

year of income or undertakes the majority of it's operation in Uganda during the year ofincome.

Under the Act 79 , where as pati of the liquidation of a resident company in this section referee to

as the" liquidated company "a business asset is transferred to a shareholder being a resident

company other than an exempt organisation, in this subsection referred to as the" transfetTed

company "and, immediately prior to the transfer the transferred company held a fifty percent or a

greater interest in the voting power of the liquidated company. The transfer is not treated as a

:lisposal of the asset by the liquored company, but is treated as the acquisition of a business asset
14
section 34(5)
" N.S.S.F Act Cap 222
"Section 2(n) of the Act
"INCOME TAX ACT CAP 340
78
section 10
''section 77(2) of the Act

23
by the transferred company. The transferee's cost base for the asset is equal to the liquidated

company's cost base for the asset at the time of transfer. The transfer of the asset is not a

dividend ; and no gain or loss is taken into account on the cancellation of the transferee's share

on the liquidated company.

2.4 Employment Act 2006

Under the Act 80 , the bankruptcy or winding up of the employer's business shall cause the

contract of service of any employee to terminate one month from the date of the bankruptcy or

the winding up order 81 . An employee's claim for wages and other entitlements in case of

bankruptcy or winding up shall be governed by section 48.

Under the employment Act82 , Notwithstanding any other law to the contrary on the bankruptcy

or winding up of an employer's business, the claim of an employee or those claiming on his or

her behalf, wages and other payments to which he or she is entitled under this Act, shall have

priority over all other claims which have accrued in respect of the twenty-six weeks immediately

preceding the. date on which the declaration of bankruptcy or winding. up is made.

2.5 Common law principles

Common law principles have brought about evolutions m laws governing dissolution of

Companies in Uganda.

According to common-law doctrine creating an obligation that is actionable within the

jurisdiction, cannot be enforced without the institution of fresh legal proceedings 83 . This is said

to be on grounds that courts recognize the limitation of their own power, if making an order in
30
section 30 of the Act
31
EMPLOYMENT ACT 2006
32
section 48 of the Act
33
Cheshire and North"s Private International Law (Butterworths, 1994) at 348.

24
similar circumstances, to affect assets of a company abroad without the express consent of the

foreign court to initiate and assist proceedings.

In the case of Montpelier v Lombard Manx 84 in relation to company and insolvency laws and the

powers of judges to create and develop principles of common law in order to serve the interests

of justice. The court took account of the wholly unsatisfactory nature of the stay of a winding-up

order and concluded that it was satisfied that it was entitled to determine whether, in such

circumstances, its own inherent jurisdiction at Manx common law could provide a more

appropriate remedy. It was futiher satisfied that the requirements of the case required it to do so.

The appeal court considered that Re Frankland did not require it to regard decisions of the

English courts before Rule 7.47(1) was made binding on the Manx courts, and held that even on

the terms of that decision, such decisions are only of high persuasive authority and generally

should be followed in the absence of a Manx statute. The appeal court further determined that it

has the ability to formulate its own law in a way which is considered most appropriate for the

needs, requirements and interests of the inhabitants of the island and the wider international

community of which the island is a part: It considered that it was insufficient to conclude that tlie

matter was solely for the island's legislature, and that it was appropriate to address the issue of

inherent jurisdiction in that context where the legislature had taken no opportunity to amend or

re-enact new legislation or rules which would otherwise address the issue.

Accordingly, the appeal court concluded that it has an inherent jurisdiction at common law to

review, rescind or vary a winding-up order where such an order is necessary in the interests of

iustice. It further held that such jurisdiction should be exercised only where there has been a

material change in circumstances since the making of the order, where the facts on which the

14
Montpelier v Lombard Manx [2015]

25
original order had been made were mistaken - innocently or otherwise - or where there was a

manifest mistake on the part of the judge in formulating the order.

Under Ugandan law, the Judicature Act85 provides that the High Court of Uganda shall consist of

the Principal Judge; and twenty-five judges of the High Court or such higher number of judges of

the High Court as may be prescribed by Parliament by resolution.

The Judicature Act 86 provides that the High Comt shall, subject to the Constitution, have

unlimited original jurisdiction in all matters and such appellate and other jurisdiction as may be

conferred on it by the Constitution or this Act or any other law. Subject to the Constitution and

this Act, the jurisdiction of the High Court is exercised in confotmity with the written law,

including any law in force immediately before the commencement of this Act; subject to any

written law and insofar as the written law does not extend or apply, in conformity with (i) the

common law and the doctrines of equity; (ii) any established and current custom or usage; and

(iii) the powers vested in, and the procedure and practice observed by, the High Court

immediately before the commencement of this Act insofar as any such jurisdiction is consistent

with the provisions of this Act; and (c) where no express law or rule is applicable to any matter

in issue before the High Court, in conformity with the principles of justice, equity and good

conscience.

(3) The applied law, the common law and the doctrines of equity shall be in force only insofar as

the circumstances of Uganda and of its peoples permit, and subject to such qualifications as

circumstances may render necessary.

"Section13 of the Judicature Act Cap 13

"Section14 of the Judicature Act Cap 13

26
Subject to subsection (2), in every cause or matter before the High Court, the rules of equity and

the rules of common law shall be administered concurrently; and if there is a conflict or variance

between the rules of equity and the rules of common law with reference to the same subject, the

rules of equity shall prevail.

For the purposes of this section, the expressions "common law" and "doctrines of equity" mean

those parts of the law of Uganda, other than the written law, the applied law or the customary

law, observed and administered by the High Court as the common law and the doctrines of

equity respectively.

In the case of Williams v. Clark Sand Company, Inc 87 • This case was a latent-injury silicosis case

filed against a Florida corporation that was dissolved. The issue this case presented for the

Mississippi Supreme Court's review centered on whether the Florida corporate-survival statute

applied to a Mississippi plaintiff, or whether the discovery rule for latent injuries permitted

claims to be brought against the foreign corporation after dissolution. Sixteen plaintiffs sued

Clark Sand Company, Inc. more than four years after the corporation's dissolution. The circuit

court judge sustained Clark Sand's motion for summmy judgment. "At common law, when a

corporation dissolved, it no longer existed, and it could not be sued. But because of the harshness

of this rule, Florida, like most states, has adopted a corporate-survival statute that allows

plaintiffs to bring suit against a Florida corporation for up to four years after dissolution."

Finding no error, the Supreme Court affirmed.

[n the Ugandan law the question often arises of whether a person has the capacity to invoke the

iurisdiction of a court. This issue may arise in the context of persons such as alien enemies,

"Williams v. Clark Sand Company, Inc

27
 foreign companies, foreign liquidators, trustees and other representatives. In Uganda, an alien

enemy residing in the country with the permission of the President (the government and Minister

in Uganda) and alien friends may sue in the Ugandan courts. However, no alien enemy residing

in Uganda without such pe1mission, or residing in a foreign country shall sue in a Ugandan court,

respective!l 8.

The general position in the country under study appears to be that a juristic person created by

foreign few would be recognized as such by the forum's courts for the purpose of enabling that

person to invoke the jurisdiction of the forum's courts, in Uganda, it has been held that when a

foreign company has gone into voluntary winding up, or has been dissolved or wound up by the

law of its domicile, Ugandan courts, do not recognize it as an existing entity at all, but merely as

a name, with no legal existence. Such an entity cannot therefore sue or be sued in Uganda89 .

In the cases of Oklahoma Nat. Gas Co. v. State of Oklahoma 90 at common law, once a

corporation was dissolved, it was dead in the eyes of the law and no claim could be maintained

against it, this was further emphasized in the case of Theta Props. v. Ronci Realty91 "Raising the

dead to sue them can prove as difficult with dissolved corporations as with other quondam life

forms."). To soften this harsh rule, many states have adopted corporate-survival statutes.

Under Insolvency Act 92 where a claim is subject to a contingency, is for damages or for some

other reason the amount of the claim is not certain, the liquidator or trustee shall make an

estimate of the amount of the claim; or refer the matter to the court for a decision on the amount

of the claim. On the application of the liquidator, trustee or any claimant who is aggrieved by an

8
' Private International Law in Commonwealth Africa By Richard Frimpong Oppong p 126
"Ibid
"Oklahoma Nat. Gas Co. v. State of Oklahoma, 273 U.S. 257, 259-60, 47 S.Ct. 391, 392, 71 L.Ed. 634 (1927)
"Theta Props. v. Ronci Realty Co., 814 A.2d 907, 910, 912 (R.I.2003)
"Section 8 of the Insolvency Act 2011 of Uganda.

28
estimate made by the liquidator or trustee, the court shall determine the amount of the claim as it

deems fit.

Where there have been mutual credits, Mutual debts or other Mutual dealings between a

Company or an individual who would seek to have a claim admitted an account shall be taken of

what is due from the one party to the other in respect of those credits, debts or dealings; an

amount due from one party shall be set off against any amount due from the other party; and only

the balance of the account may be claimed in liquidation or bankruptcy or is payable to the

company or the bankrupt's estate93 .

A secured creditor who realizes an asset subject to a charge may claim as an unsecured creditor

for any balance due, after deducting the net amount realized and shall account to the liquidator or

trustee for any surplus remaining from the net amount realized after satisfaction of the whole

debt, including any interest payable in respect of that debt up to the time of its satisfaction and

after making proper payments to the holder of any other charge over the asset subject to the

All in all the Companies Act provides for one mode of dissolution of companies while the

[nsolvency Act provides for three modes of dissolution of Companies which shows a conflict in

the laws governing winding up of Companies in Uganda.

"Section 9 of the Insolvency Act 2011 of Uganda.

14
Section 11 of the Insolvency Act 2011 of Uganda.

29
 CHAPTER THREE

CIRCUMSTANCES UNDER WHICH A COMPANY MAY BE DISSOLVED UNDER

UGANDAN LAW

3.0 Introduction
In Uganda, a company incorporated or registered under the Companies Act95 may be dissolved in

different ways and for different reasons. Some common reasons are financial difficulties or

disagreements among the members. The process of closing down a company is called ' winding

up ' . Under the Companies Act 96 and Insolvency Act there are three modes of winding of a

company in Uganda:

3.1 Voluntary liquidation

Before a company can carry out Voluntary liquidation, it should provide a declaration of

solvency. Where it is proposed to wind up a company voluntaril/ 7, the directors of the company

or, in the case of a company having more than two directors, the majority of the directors, may,

at a meeting of the directors make a declaration in the prescribed form to the effect that they have

made a full inquiry into the affairs of the company and that, having done so, they have formed

the opinion that the company will be able to pay its debts in full within a period not exceeding

twelve months from the commencement of the liquidation as may be specified in the declaration.

A declaration made under subsection (1) shall have no effect or the purposes of this Act unless it

is made within thirty days before the date of the passing of the resolution for winding up the

15
The Companies Act, (Act No. 1 of 2012),
16
Act No. 1 of 2012
17
section 271 of The Companies Act of 2012

30
company and is delivered to the registrar with a copy to the official receiver for registration

before that date; and it includes a statement of the company's assets and liabilities as at the latest

practicable date before the making of the declaration.

A director of a company who makes a declaration under this .section, without reasonable

grounds for the opinion that the company will be able to pay its debts in full within the period

specified in the declaration commits an offence and shall be liable on conviction to imprisonment

not exceeding twelve months or to a fine not exceeding twenty four currency points or both.

Where the company is wound up in accordance with a resolution passed within the period of

thirty days after the making the declaration, but its debts are not paid or provided for in full

within the period stated in the declaration, it shall be presumed until the contrary is shown that

the director did not have reasonable grounds for his or her opinion.

Under the Insolvency Act, 98 a company may be liquidated voluntarily ifthe company resolves by

special resolution, that it cannot by reason of its liabilities continue its business and that it is

advisable to liquidate. Voluntary liquidation shall be taken to commence at the time of passing

the resolution for voluntary liquidation. In this Part, a "resolution for voluntary liquidation"

means a resolution passed under subsection (1).

According to Insolvency Act99 Where a company passes a resolution for voluntary liquidation, it

shall, within fomieen days after passing the resolution, give notice of the resolution in the

Gazette and in a newspaper in the official language with a wide national circulation. The

resolution for voluntary liquidation shall be registered with the registrar and a copy sent to the

:Jfficial receiver within seven days from the date of passing the resolution. Where default is made

"section 58 of Insolvency Act (1)

"Section 59 of the Insolvency Act.

31
in complying with this section, the company and every officer of the company who is in default

shall be liable to a default fine and for the purposes of this subsection the liquidator of the

company shall be taken to be an officer of the company.

According to the Insolvency Act 100 • Power to order liquidation subject to supervision. Where a

company passes a resolution for voluntary liquidation, the court may make an order that the

voluntary liquidation shall continue, subject to the supervision of court and with the liberty for

the creditors, contributories or other interested persons, to apply to court and generally on such

tenns and conditions as the court may think just.

3.2 Liquidation subject to supervision by court

Where a company passes a resolution for voluntary liquidation, the court may make an order that

the voluntary liquidation shall continue, subject to the supervision of court and with the liberty

for the creditors, contributories or other interested persons, to apply to court and generally on

such tetms and conOditions as the court may think just. An application for the continuance of a

volunlaty liquidation subject to the supervision of the couFI: shall, for the purpose of giving

jurisdiction to the court over actions, be taken to be a petition for liquidation by the court.

Where an order is made for liquidation subject to supervision, the court may by that order or any

subsequent order appoint an additional liquidator. A liquidator appointed by the court under this

section shall have the same powers, be subject to the same obligations and in all respects be in

the same position as if he or she had been duly appointed under this Act with respect to the

1ppointment of liquidators in a voluntary liquidation. The court may remove any liquidator

.oo Section 87 of the Insolvency Act.

32
appointed by the court or any liquidator continued under the supervision order and fills any

vacancy occasioned by the removal or by death or resignation.

The Court will not in general make a supervision order on the petition of a contributory, unless it

is satisfied that the resolution for winding up was so obtained that the minority of members were

overborne by fraud or improper or conupt influence. Where the company is insolvent, the wishes

of the creditors only are regarded or the investigation is required.

If a company is being wound up voluntarily or subject to supervision of the Court, a petition for

its winding up by the Court may be presented by any person authorized to do so , or the official

liquidator 101

Where supervision is made, the Court may appoint an additional liquidator or liquidators, or

remove any liquidator at any time and fill any vacancy. The Court may also appoint the official

liquidator as an additional liquidator or to fill any vacancy.

3.3 Liquidation by Court

lJnder the Insolvency Act 102, The court may appoint a liquidator on the application of (a) the

~ompany; (b) a director of the company; (c) a shareholder of the company; (d) a creditor of the

~ompany; (e) a contributory; or (f) the official receiver. The comt may make an order under

;ubsection, if it is satisfied that the company is unable to pay its debts within the meaning of

;ection. On hearing a liquidation petition the court may dismiss it, or adjourn the hearing

~onditionally or unconditionally, or make any interim order or any other order that it thinks fit,

)ut the court shall not refuse to make a winding up order on the ground only that the assets of the

01
Section 87 of the Insolvency Act
02
Section 92 of the Insolvency Act

33
company have been mortgaged to an amount equal to or in excess of those assets or that the

company has no assets.

Where, before the presentation of a petition for the liquidation of a company by the court, a

resolution is passed by the company for voluntary liquidation, the liquidation of the company

shall be deemed to commence when the resolution is passed and unless the court 103, on proof of

fraud or mistake, thinks fit and directs, all proceedings of the voluntary liquidation shall be taken

to be valid. In all other cases, liquidation of a company by the court shall be taken to commence

at the time of presentation of the petition for liquidation

3.3.1 Inability to pay debts

A company can be dissolved due to inability to pay its debts. Where a company passes a

resolution for voluntary winding up of a company the provisions of the insolvency Act 104 relating

to liquidation shall the necessary modifications apply to voluntary winding up of a company. 105

Unless the contrary is proved, a debtor is presumed to be unable to pay the debtor's debts if(a)

the debtor has failed to comply with a statutory demand; the execution issued against the debtor

in respect of a judgment debt has been returned unsatisfied in whole or in part; or all or

mbstantially all the property of the debtor is in the possession or control of a receiver or some

)ther person enforcing a charge over that property. On a petition to the court for the liquidation

)fa company or bankruptcy order, evidence of failure to comply with a statutory demand by the

~reditor, shall not be admissible as evidence of inability to pay debts unless the application is

nade within 30 working days after the last date for compliance with the demand. Insolvency Act

03
Section 93 of the Insolvency Act
04
the insolvency Act 2011
05
Section 272 of the companies Act 2012

34
106
does not prevent proof of inability to pay debts by other means. In determining whether a

debtor is unable to pay the debtor's debts, contingent or prospective debts may be taken into

account. A petition to the court for the liquidation of a company or bankruptcy order on the

ground of inability to pay debts, may be made by a contingent or prospective creditor only with

the leave of the court; and the court may give such leave, with or without conditions, only if it is

satisfied that a prima facie case of inability to pay debts has been made out.

A demand by a creditor in respect of a debt made in accordance with this section shall be a

demand notice and shall constitute a statutory demand. A statutory demand shall be made in

respect of a debt that is not less than the prescribed amount and in the case of a debt owed by an

individual is a judgment debtor; or a company is an ascertained debt, but need not be a judgment

:lebt; be in the prescribed form; except where the debt is a judgment debt, be verified by a

statutory declaration attached to the demand; be served on the debtor; and require the debtor, to

pay the debt or compound with the creditor or give a charge over property to secure payment of

the debt, to the reasonable satisfaction of the creditor, within twenty working days after the date

Jf service or a longer period as the court may order..

3.3.2 Court order to windup following complaints from creditors.

For the creditors' voluntary liquidation 107 , the company shall cause a meeting of the creditors of

:he company to be summoned on the same day as the meeting for the resolution for liquidation is

:o be proposed or on the following day; and send to the creditors, notices for the meeting of the

:reditors of the company, together with the notices for the meeting for proposing the resolution

'Or liquidation. The notice for the meeting of the creditors shall be advertised once in the

06
Act 141nsolvency Act 2011 (3) Subsection
07
Section 69 of the Insolvency Act

35
Gazette and in the official language in a newspaper of wide circulation in Uganda. The directors

of the company shall appoint one of them to preside at the meeting; and present a full statement

of the position of the company's affairs and a list of the creditors of the company and the

estimated amount of their claims, to the meeting of the creditors. The director appointed to

preside at the meeting of the creditors shall attend and preside over the meeting. Where the

meeting of the company at which the resolution for voluntary liquidation is to be proposed is

adjourned and the resolution is passed at an adjourned meeting, any resolution passed at the

meeting of the creditors held under subsection, shall have effect as if it has been passed

immediately after the passing of the resolution for liquidating the company. Where default is

made by the company contrary to subsections and by the directors contrary to subsection ; or by

my director of the company contrary to subsection, the company, directors or director, shall be

liable to a fine not exceeding fifty currency points, and, in the case of default by the company,

~very officer of the company who is in default shall be liable to a similar penalty.

fhe court may appoint a liquidator on the application of the creditor of the company 108 ; (2) the

;ourt may make an order under subsection, if it is satisfied that the company is unable to pay its

iebts within the meaning of section hearing a liquidation petition the court may dismiss it, or

1djourn the hearing conditionally or unconditionally, or make any interim order or any other

Jrder that it thinks fit, but the court shall not refuse to make a winding up order on the ground

mly that the assets of the company have been mmtgaged to an amount equal to or in excess of

:hose assets or that the company has no assets.

08
Section 92 OF THE Insolvency Act

36
3.3.3 In case the shareholders agree to dissolve the Company

The court may appoint a liquidator on the application of a shareholder of the company; the court
109
may make an order under subsection , if it is satisfied that the company is unable to pay its

debts within the meaning of section 3 of the Insolvency Act .On hearing a liquidation petition the

court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any

interim order or any other order that it thinks fit, but the court shall not refuse to make a winding

up order on the ground only that the assets of the company have been mortgaged to an amount

equal to or in excess of those assets or that the company has no assets.

3.4 Powers of liquidators

A liquidator may, subject to subsection 110 , require a director, secretary or shareholder of the

~ompany or any other person in possession of books or documents of the company, to deliver

them to the liquidator. A person shall not withhold a document of the company from the

liquidator on the ground that possession of the document creates a charge over property of the

;ompany. Subject to subsection, production of a document to the liquidator shall not prejudice

'he existence or priority of the charge, and the liquidator shall make the document available to

my person entitled to it for the purpose of dealing with or realizing the charge or the secured

Jroperty. A person shall not enforce a lien over any document of company in respect of a debt

for services rendered to the company before the commencement of the liquidation. The debt

:eferred to in subsection shall be a preferential claim against the company under section 12 to the

~xtent of twenty five currency points or a greater amount as may be prescribed by Regulations.

09
1bid
10
Section 105 of the Insolvent Act

37
This applies to any director 111 , secretary or shareholder of the company; any person who has

been a director or secretary of the company; any person who is or has been an employee of the

company; and receiver, administrator or provisional administrator, advocate, accountant,

auditor, bank officer or any other person with knowledge of the financial affairs of the company.

A liquidator may require a person referred to in subsection to appear before the liquidator at a

reasonable time; provide the liquidator with information concerning the business, accounts or

Jther affairs of the company as the liquidator requests; take an affitmation or be examined on

Jath administered by the liquidator, on any of those matters; and assist in the liquidation of the

;ompany to the best of his or her ability. Any person required to appear before or assist the

.iquidator or is entitled to reasonable remuneration 112 unless that person is, at the time of the

1ppearance or assistance, an employee of the company. The remuneration referred to in

mbsection shall be determined by the liquidator, but where a person considers that the

·emuneration is not reasonable, he or she may apply to court, 113 leave of court shall not be

·equired to make an application 114 A person shall not be entitled to refuse to attend or assist the

!quidator by reason that the remuneration to be received by him or her, has not been determined

Jr paid in advance. On application by the liquidator, court may order any person to appear

Jefore the court and to be examined on oath or affirmation by the court or the liquidator on any

natter relating to the company. A person examined shall not be excused from answering any

1uestion on the ground that the answer may incriminate or tend to incriminate him or her. The

estimony of any person examined under subsection (2) or (7) is not admissible as evidence in

my criminal proceedings against that person, except on a charge of petjury in respect of the

11
Section 106
12
82 Act 14 Insolvency Act 2011
13
section 117.
14
under subsection (4). (6)

38
testimony. A person examined under subsection (2) or (7) may apply to the court to be

exculpated from any allegation made against him or her and on the hearing of that application,

the liquidator shall appear and bring to the attention of the court any matter which may appear to

be relevant. Any person who unreasonably refuses to cooperate with or assist the liquidator or
115
interferes with the liquidator's powers .Insolvency Act commits an offence and is liable on

~onviction to a fine not exceeding twenty four currency points or imprisonment not exceeding

Jne year or both.

fhe liquidator may disclaim any onerous property, even if the liquidator has taken possession of

:he property, tried to sell it or otherwise exercised rights of ownership. A disclaimer under this

;ection brings to an end the rights, interest and liabilities of the company in respect of the

Jroperty disclaimed; and shall not, except so far as necessary to release the company from any

iability, affect the rights or liabilities of any other person. A person who suffers loss or damage

ts a result of a disclaimer under this section may apply to court for an order that the disclaimed

Jroperty be delivered to or vested in that person; or claim as a creditor of the company for the

tmount of the loss or damage taking into account the effect of any order made by tlie court under

Jaragraph .For the purposes of this section "onerous property" means any unprofitable contract;

>r any other property of the company which is not capable of being sold or not readily capable of

>eing sold or which may give rise to a liability to pay money or perform any other onerous act.

1.5 jurisdiction of the Court.

~he jurisdiction in liquidation matters shall be exercised by the high Court. Under Ugandan law,

he Judicature Act 116 provides that the High Court of Uganda shall consist of the Principal Judge;

"83 Act 14 Insolvency Act 2011

'' Sectionl3 of the Judicature Act Cap 13

39
and twenty-five judges of the High Court or such higher number of judges of the High Court as

may be prescribed by Parliament by resolution.

The Judicature Act 117 provides that the High Court shall, subject to the Constitution, have

unlimited original jurisdiction in all matters and such appellate and other jurisdiction as may be

~onferred on it by the Constitution or this Act or any other law. Subject to the Constitution and

this Act, the jurisdiction of the High Court is exercised in conformity with the written law,

including any law in force immediately before the commencement of this Act; subject to any

Nritten law and insofar as the written law does not extend or apply, in conformity with (i) the

;ommon law and the doctrines of equity; (ii) any established and cmTent custom or usage; and

:iii) the powers vested in, and the procedure and practice observed by, the High Court

mmediately before the commencement of this Act insofar as any such jurisdiction is consistent

Nith the provisions of this Act; and (c) where no express law or rule is applicable to any matter

n issue before the High Court, in conformity with the principles of justice, equity and good

;onsc1ence.

J) The applied law, the common law and the doctrines of equity shall be in force only insofar as

he circumstances of Uganda and of its peoples permit, and subject to such qualifications as

;ircumstances may render necessary.

>ubject to subsection (2), in every cause or matter before the High Court, the rules of equity and

he rules of common law shall be administered concurrently; and if there is a conflict or variance

Jetween the rules of equity and the rules of common law with reference to the same subject, the

ules of equity shall prevail.

17
Section14 of the Judicature Act Cap 13

40
:::ommencement of liquidation by Petition 118 . Where, before the presentation of a petition for the

.iquidation of a company by the court, a resolution is passed by the company for voluntary

.iquidation, the liquidation of the company shall be deemed to commence when the resolution is

Jassed and unless the court, on proof of fraud or mistake, thinks fit and directs, all proceedings

Jf the voluntary liquidation shall be taken to be valid.

fhe following persons can file a petition:-

fhe company: A company may itself file a petition for winding up after it has passed a special

·esolution. The directors have no powers to present a petition for winding up.

:::reditors: The word creditor here refers to every person having a pecuniary claim against the

:ompany, whether actual or contingent, and such a person is competent to file a petition for the

¥inding up of the company.

)isputed debt: A creditor whose debt is disputed cannot get a winding up order. The court may

:ither order the petition or stand over until the validity of the debt can be determined, or may

lismiss a petition.

'etition by any contributory: A contributory is any person liable to contribute to the assets of the

:ompany in the event of its being wound up. It however includes all persons who at the date are

nembers of the company or, have been members within a year immediately proceeding that date.

ihe petitioner must prove inability to pay debts as its provided in Section 3 of the Insolvency

\ct.

18
Section 93 of the insolvency Act.

41
All in all for voluntary liquidation the company should provide a declaration of Solvency

whereas in liquidation by court order and subject to supervision by court, the major

Circumstance for liquidation is inability to pay debts by the company.

42
 CHAPTER FOUR

LEGAL CONSEQUENCES OF DISSOLUTION OF A COMPANY IN UGANDA

t.O Introduction
fhe settlement of claims under Company law in Uganda follows a given order for instance

Jreferential payments, preferential payments include remuneration expenses incun·ed by the

.iquidator, all wages and salaries. After payment of preferential debts follows non-preferential

iebts, unsecured creditors and the balance is returned to the contributories or distributed among

:he shareholders.

1.1 Order of settlement of claims

Jnless otherwise required by the liquidator or trustee, an unsecured creditor may make a dated

;!aim informally in writing 119 . Where the liquidator or trustee requires a claim to be made

'ormally, the claimant shall submit a claim verified by a statutory declaration setting out in full

he particulars of the claim; and identifYing documents, if any, that evidence or substantiate the

;!aim. The liquidator or- trustee may require the production of any document
- referred to in
mbsection. The liquidator or trustee may admit or reject any claim in whole or in part and if the

iquidator or trustee subsequently considers that a claim was wrongly admitted or rejected in

,rhole or in part, he or she may revoke or amend the decision.

\ secured creditor shall, as soon as practicable after public notice has been gtven of the

iquidation or bankruptcy 120 , deliver to the liquidator or trustee written notice of any debt secured

19
Section 10 of the insolvency Act.
20
Section 11 of the insolvency Act.

43
 JY a charge over any asset, including particulars of the asset subject to the charge and the amount

;ecured l2l .

II,. secured creditor may realise any asset subject to a charge, where he or she is entitled to do so;

:!aim as a secured creditor; or surrender the charge for the general benefit of creditors and claim

1s an unsecured creditor for his or her whole debt. A secured creditor who realises an asset

;ubject to a charge may claim as an unsecured creditor for any balance due, after deducting the

1et amount realised; and shall account to the liquidator or trustee for any surplus remaining from

he net amount realised after satisfaction of the whole debt, including any interest payable in

·espect of that debt up to the time of its satisfaction and after making proper payments to the

10lder of any other charge over the asset subject to the charge. Where a creditor claims as a

;ecured creditor, the claim shall be verified by a statutory declaration and shall set out in full the

mrticulars of the claim; set out in full the particulars of the charge including the date on which it

¥as given; and identify any documents that substantiate the claim and the charge and sections 6

md 8 shall apply to such a claim.

Nhere a claim is made by a creditor as a secured creditor, the liquidator or trustee shall meet the

:!aim in full and redeem the charge; realise the asset subject to the charge and pay the secured

:reditor the lesser of the amount of the claim and the net amount realised taking into account the

iquidator or trustees reasonable remuneration; or reject the claim in whole or in part, and where

l claim is rejected in whole or in part, the creditor may make a revised claim as a secured

:reditor within ten working days of receiving notice of the rejection; and the liquidator or trustee

nay, if he or she subsequently considers that a claim was wrongly rejected in whole or in part,

evoke or amend any such decision.

21
Section 11 of the Insolvency Act 2011

44
'\ creditor, who claims as a secured creditor, may claim as an unsecured creditor for any balance

iue to him or her, after deducting any payment made. The liquidator or trustee may at any time

·equire a secured creditor by notice in writing to take possession of any asset subject to a charge,

f entitled to do so; or deliver a claim as a secured creditor in accordance with subsection, within

wenty working days after receipt of the notice, if he or she intends to rely on the security.

1.1.1 Preferential debts

[he liquidator or trustee shall apply the assets to the preferential debts listed in subsections, 122

md, which debts shall be paid in priority to other debts 123 . Preferential debts shall so far as the

tssets are insufficient to meet them, have priority over the claims of secured creditors in respect

>f assets which are subject to a security interest; and become subject to that security interest by

eason of its application to certain existing assets of the grantor and those of its future assets

vhich were after-acquired prope1iy or proceeds, and shall be paid accordingly out of those

tssets. Preferential debts are as listed in subsections and shall be paid in the order of priority in

vhich they are listed. First to be paid shall be remuneration and expenses properly incurred by

he liquidator or trustee; any receiver's or provisional administrator' s indemnity 124 and any

emuneration and expenses properly incurred by any receiver, liquidator, provisional liquidator

tdministrator, proposed supervisor or supervisor; and the reasonable costs of any person who

>etitioned court for a liquidation or bankruptcy order, including the reasonable costs of any

>erson appearing on the petition whose costs are allowed by the court. After making the

>ayments listed in subsection, next to be paid shall be all wages or basic salary, wholly earned or

:amed in part by way of commission for four months all amounts due in respect of any

12
Section 12
23
Subject to section 11, and subsection (2) of the Insolvency Act
14
sections 159 or 187

45
;ompensation or liability for compensation under the Worker's Compensation Act, accrued

)efore the commencement of the liquidation or bankruptcy, not exceeding the prescribed
125
unount; all amounts that are preferential debts. After paying the sums refened to in

;ubsection, the liquidator shall then pay the amount of any tax withheld and not paid over to the

Jganda Revenue Authority for twelve months prior to the commencement of insolvency; and

:ontributions payable under the National Social Security Fund Act. This section shall apply

10twithstanding any other law.

'referential payment certain debts are to be paid in priority to all other debt Such payments are

:ailed preferential payments. It may however by noted that sue payments are made after paying

he secured creditors, and costs, charges and expenses the winding up. These preferential

>ayments are:

a) All revenues, taxes, cesses and rates due from company to the Central or State Government or

o a local authority. The amount slum have become due and payable within 12 months before the

vinding up. (b) All wages salary of any employee in respect of services rendered to the company

md due for period not exceeding 4 months within 12 months.

U.2 Non-preferential debts

\.fter paying preferential debts in accordance with section 12, the liquidator or trustee shall apply

he assets in satisfaction of all other claims. The claims referred to in subsection shall rank

:qually among themselves and shall be paid in full unless the assets are insufficient to meet

hem, in which case they abate in equal proportions. Where before the commencement of a

iquidation or bankruptcy, a creditor agrees to accept a lower priority in respect of a debt than

15
Section 33 or 105. (6) of the Insolvency Act 2011

46
hat which the creditor would otherwise have under this section, nothing in this section shall

Jrevent the agreement from having effect according to its terms.

1.1.3 Distribution among share holders

>urplus assets 126 . Where there is a surplus after making the payments referred to in section 13 in

he case of a bankruptcy, the trustee in bankruptcy shall pay the surplus to the bankrupt; and in

he case of a liquidation, the liquidator shall distribute the company's surplus assets in

tccordance with the memorandum and articles of association of the company and the Companies

\ct.

["he process and distribution of the surplus to shareholders depends on the type of shares held by

he shareholders. 127

t. Preference Shares holders

l"hese shares are usually preferential in respect to dividends i.e, they are entitled to receive a

ixed rate of dividends

.
which is payable to them before any dividend is distributed
.
to the other

:lasses of shareholders. A holder of such shares is reasonably sure of receiving a fixed sum of

lividends even if the profits are not sufficient to pay any interest to the other shareholders.

l. Ordinary share holders

~hese are also referred to as equity capital. The holders of ordinary shares usually carry the main

ask of the business as they invest their money without having any sort of assurance that they

viii be paid any interest on their Investment. The holders of such shares receive dividends out of

"Section 14insolvency Act 2011

27
Section 83 of the Companies Act 2012

47
profits as recommended the directors and declared by the members. If there are holders of

preference shares, the dividends on ordinary shares are paid after payment of dividends on

Jreference shares.

:. Deffered Shareholders

fhese are usually limited in number and are of small nominal value. These shares are usually

~iven the right to a proportion of the profits if the dividends on the-ordinary shares exceed a

:ertain fixed amount. This type of share is normally issued to promoters in consideration of

Jroperty or for services rendered to the company. These shares are sometimes referred to as

"oundation management shares.

1.1.4 Companies limited by guarantee

jmited by guarantee companies are most often formed by non-profit organizations such as

:ports clubs, workers' co-operatives and membership organizations, whose owners wish to have

he benefit of limited financial liability. A company limited by guarantee does not have any

:hares or shareholders (like the more common limited by shares structure) but is owned by

~uarantors who agree to pay a set amount of money towards company debts. Furthermore, there

viii generally be no profits distributed to the guarantors as they will instead be re-invested to

telp promote the non-profit objectives of the company. If any profits are distributed to the

owners, then the company will forfeit its right to apply for a charitable status. Winding up a

:ompany that is limited by Guarantee is relatively uncommon, simply because there are far fewer

ompanies Limited by Guarantee, rather than having Ordinary Shareholders. Often they are Not

or Profit organizations so it is especially important to review the company's Constitution to see

vhat specific rules will apply in a winding-up. Most commonly, the Constitution will require that

48
my surplus assets be distributed to a '"like-minded institution" or words to that effect. That is,

he surplus assets are not distributed to the Members.

1.2 Consequences of dissolution of a company.

t takes place only for some specific reasons, that the court may supervise the winding up

Jroceedings. Here the court is also given the rights to put some special terms and conditions for

hat particular company However 128, creditors has granted the liberty, contributories or others to

tpply to court for some relief in the case the company is being wound up compulsory The

Jetitioner should anyhow how prove that voluntary winding up cannot be continued with faimess

o all the concemed parties. The court has the rights to appoint an additional liquidator or

:ontinue with its existing liquidator to provide security.

['he liquidator should file the report of the progress ofliquidation with in the registrar every three

nonths - The court may also appoint a additional liquidator, in addition to already appointed, or

emove any of the liquidator. The comi can also appoint an official liquidator, as to fill up the

racancy. Liquidator is entitled to do all such acts which he thinks best in the interest of the
. .

:ompany. He shall enjoy the same powers, even if the company is wound up voluntarily.

The court can also exercise some powers to enforce calls by the liquidators, and other such

Jowers, as making the call or order for the winding up the company altogether by comt 129 .

.Vinding up of Registered Company and Unregistered Company the procedure of winding up in

egistered company is different from as that of the unregistered company. A company which is

28
Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international
lata. The journal of Finance, 50(5), 1421-1460.
29
Fraser, R. D. (1971). Administrative Powers of Investigation into Companies. Mod. L. Rev., 34, 260.

49
formed and registered under Companies Act 130 is said to be as registered company. It also

.ncludes the existing company, which has been formed earlier and registered under Companies

<\ct 131 or under any of the earlier Companies Acts. Grounds of compulsory winding up by the

:ribunal 132 of Companies Act Winding up of a company under the order of a tribunal is also
. d"mg up 133 .
mown as compuIsory wm

Winding up Petition Consequences the consequences of a concluding petition area unit varied

10wever listed out below area unit a number of the areas a individual should take into

:onsideration once served with a concluding order:

Disposition of company property being void. In layman"s terms, this covers a scenario whereby

narketing of assets, disbursal of company cash, charging assets etc when the date a petition has

>een g1ven are often nullified by the court if the corporate is later aroused. Disposition of

>roperty when the date of a concluding petition will even have senous effects on the

Ldministrators according to Intemational Joumal of Pure and Applied Mathematics Special Issue

>f the corporate 134 if a concluding order is granted by the concluding petition court. Indeed, a

jquidator might look for to recover assets or property from administrators by approach of

eparate legal court action once a concluding order is created. There is the simplest way around

hese difficulties which is to hunt what's referred to as a Validation Order below the economic

ondition Act 135 .

"Companies Act 2012

11
Companies Act 19545
"(section 271 of Companies Act 2012)
"Gower, L. C. B. (1953). The English private company. Law & Contemp. Probs., 18, 535.
"International Journal of Pure and Applied Mathematics Special Issue 804 of the corporate
"Waddell, P. (2011). Integrated land use and transportation planning and modelling: addressing challenges in
esearch and practice. Transport Reviews, 31(2), 209-229.

' 50
fhe bank might freeze the checking account. "Winding up petition checking account frozen" are

;orne things that ordinarily happens when the presentation of a concluding order. this is often as

t result of the bank doesn't wish to be control accountable for monies deed the checking account

Nhen the date the concluding petition was issued 136 . usually this solely happens when concluding

Jrder promotion within the London Gazette however it will happen beforehand if it becomes

cnowledge in different ways that. It will have a dramatic result on the power of an organization

o then pay its debts.

)amage to business name. The existence of a concluding petition will have nice ramifications

ur an organization and its business name 137 . If it becomes known to suppliers of the corporate,

hey will stop to produce the corporate or evoke money on delivery. it should conjointly have an

,ffect on the banlc's ability to boost finance and/or impact greatly on its existing finance facility.

)ifferent corporations can also look for to recover their debts from the corporate faster than they

mtecedently have 138 . Lost management time. Managing a concluding petition will involve

espectable management time. while there's clearly a price attached taking skilled legal

ecommendation; it will facilitate save valuable management time and permit the administrators

)fan organization to target running the business instead of managing associate unfamiliar with

Lnd probably dangerous space of the law. If you apprehend wrong, a concluding order may

ollow which means that the Winding up Order can be Stopped or Reversed? Although it's

mcommon, it's attainable for a polishing off order to be reversed during a range of how 139 .

iowever, this can beyond question be a rich method as you ought to instruct each solicitors and

"Groschadl, P. S. (1983). Freezing the Debtor's Bank Account: A Violation of the Automatic Stay. Am. Bankr. U,
·7, 75.
"Hatch, M. J., & Schultz, M. (2008). Taking brand initiative: How companies can align strategy, culture, and
Jentity through corporate branding. John Wiley & Sons.
"Morek, R., & Yeung, B. (2003). Agency problems in large family business groups. Entrepreneurship theory and
•ractice, 27(4), 367-382.
"Chase, S. (2015). The tyranny of words. HMH.

51
tlternative professionals to help during this method. i. Recession Order Once your company has

Jeen aroused you may be sent a replica of the winding up order to the registered workplace

tddress.

k2.1 Consequences to Shareholders

;hareholder is liable to pay the full amount up to the face value of the shares held by him. Not

mly the present, but also the past members are liable on the winding up of the company. The

iability of a present member is the amount remaining unpaid on the shares held by him, while a

,ast. Member can be called upon to pay if the present contributory is unable to pay.

1.2.2 Consequences to Creditors

~ company, whether solvent or insolvent, can be wound up under the Act. In case of solvent

ompany all claims of its creditors when proved are fully met. But in case of insolvent company,

ile rules under the law of insolvency apply. A secured creditor need not prove his claim against

ile company. He may realize security and satisfy the debts. For deficiency, if any, he may put his

!aim before t liquidator. The secured creditor has also the option to relinquish his security and

,rove the amount as if he were an unsecured creditor.

!/here an insolvent company is being wound up, the insolvency rules will apply and 0 I such

!aims shall be provable against the company as are provable against an in solve person.

.. 2.3 Consequences to the dissolved companies' staff

~ winding up order by a Court operates as a notice of discharge to the employees and officers of

ile company except when the business of the company is continued. The same principle will

52
tpply as regards discharge of employees in a voluntary winding up. Where there is a contract of

:ervice for a particular period, an order for winding up w amount to wrongful discharge and

lamages will be allowed as for breach of contract service. Once a company is declared insolvent,

nost of its employees lose their job and as it is known it is hard to get a new job especially when

osing a job comes like a surprise without being prepared of it. Even if all employees got the six

nonths of salary as it is provided by Ugandan labor law, till now there are some who did not get

:nother job yet. This increases the number of jobless people in the country.

1.2.4 Consequences of proceedings against the company

When a winding up order is made, or an official liquidator has been appointed as provisional

iquidator no suit or legal proceedings can be commenced and no pending suit or legal

>roceeding continued against the company except with the leave of the court and on such terms

.s it may impose, In the case of a voluntary winding up the court may restrain proceedings

.gainst the company if it thinks fit. It may be noted that law de not prohibit proceedings being

!!ken by the company against others including directors or officers or other servants of the

ompany .

.. 2.5 Consequences as to documents

¥hen a company is being wound up whether by or under the supervision of the Court or

·oluntarily, the fact must be made known to all those having any dealing with the company;

very document in the nature of an invoice, order for goods or business letter issued in the name

f the company, after the commencement of winding up must contain a statement that the

ompany is being wound up.

53
Where a company is being wound up, all documents of the company and of the liquidators shall,

1s between the contributories of the company, be prima facie evidence of the truth of all matters

·ecorded therein.

!.2.6 Consequences to customers

[he dissolution of a company touches to its customers because the presence of a lot of

elecommunication companies is good for customers as they have a lot of choice and the fact that

t gives the competition on market, all companies compete for having the best services so that it

tttract customers 140 . For example crane bank was known as the cheapest bank company and

1pon its license revocation, its customers had to join other remaining companies and it was

>ecause they were no other choice .

.Vhen a company is wound up compulsorily by the Court, the winding up is deemed to have

:ommenced at the time of presentation of the Originating Summons for winding up. Upon the

:ommencement of winding up, the company's officers have no power to carry on the business of

he company. The liquidator takes over control of the company.

.Vithin 14 days of the winding up order, the directors and the secretary of the company must

leliver a statement of the company's affairs to the liquidator, who must then make a report to the

:ourt. The statement of affairs contains details of the company's assets and liabilities, and

:nables the liquidator to carry out investigations into the affairs of the company.

10
Jones, T. 0., & Sasser, W. E. (1995). Why satisfied customers defect. Harvard business review, 73(6), 88.

54
<\fter the Originating Summons for winding up is presented, the company, its creditors or its

;hareholders may apply to restrain any pending proceedings against the company 141 . Once the

,vinding up order is made, no action against the company may be commenced or continued

,vithout the leave of the court. Any disposition of the company's property and any transfer of its

;hares after the commencement of winding up shall be void unless the Court orders otherwise 142 •

fhe Court Fees payable for the filing of documents in respect of Compulsory Winding up

>roceedings may be found in the Second Schedule of the Companies Act (Winding Up).

Jsually, a voluntary winding up is effected by the passing of a special resolution by the members

>fthe company. The winding up commences at the time of passing the resolution .

.Vhere a company is unable to pay its debts and wishes to be wound up, it may do so by way of a

:reditors' voluntary winding up. In addition to the requirement of a members' resolution to wind

tp the company, the company must also convene a meeting of its creditors to consider the

>roposal for a voluntary winding up. The company will appoint a liquidator, subject to any

>reference the creditors may have as to the choice ofliquidator.

f no declaration of solvency is filed or if the liquidator is satisfied that the company is unable to

my its debts within the specified period of 12 months after the commencement of winding up,

he winding up will proceed as a creditors' voluntary

1rom the commencement of winding up, the company shall cease to carry on its business.

{owever, the corporate powers of the company shall continue until the company is dissolved.

"Clark, F. W. (1866). A Treatise on the Law of Partnership and Joint-stock Companies, According to the Law of
cotland: Including Private Copartneries, Common Law Companies, Registered Companies, Chartered Companies,
:ailway Companies, and Others, Formed Under the Consolidation Acts (Vol. 2). T. & T. Clark;( etc., etc.).
12
Gower, L. C. B. (1955). Some contrasts between British and American corporation law. Harv. L. Rev., 69, 1369.

55
fhe company's shareholders cannot transfer their shares in the company without the sanction of

he liquidator.

1.2.6 Consequences to the business and status of the Company

A company from the commencement of voluntary liquidation ceases to carry on business,

:xcept so far as may be required for the beneficial liquidation of the company. The corporate

:tatus and powers of the company notwithstanding anything to the contrary in its articles,

:ontinue until it is dissolved.

\11 in all there is an order of settlements of claims during and after the windings up of a

:ompany these vary from preferential payments, non preferential payments and unsecured

:reditors, fmihermore the liquidation process brings about consequences to different groups of

Jersons varying from creditors, shareholders and employees of the company liquidation has thus

Jeen seen to have implications on corporate investment, hiring and wage freezes that led to job

:uts.

56
 CHAPTER FIVE

CONLUSION

U Summary
/arious statutes m Uganda constitute the legal framework for dissolution of companies in

Jganda the companies Act 2012 for instance provides for one mode of dissolution which is

>oluntary winding up. Under this, the directors of the company make a statutory declaration of

olvency to the effect that the company will be able to pay its debts in full within a period of one

•ear from the commencement of the liquidation. The insolvency Act 20 II constitutes the biggest

>ercentage of the laws governing liquidation in Uganda. Three modes of liquidation are provided

or which are voluntary liquidation, liquidation by court order and subject to supervision by

:ourt. Other statutes such as the NSSF Act, Employment Act, and Income Tax Act also provide

or provisions governing liquidation process in Uganda in their different capacities.

:ircumstances under which a company may be dissolved under Ugandan law vary depending on

~e mode of dissolution taken up. For Instance in voluntary liquidation, the directors have to
- -
•rovide a statutory declaration of solvency to the effect that the company will be able to pay its

.ebts in full within a period of one year on commencement of liquidation .however liquidation

'Y court or under supervision of court is usually because the company is unable to pay its debts.

'he court can appoint a director, a shareholder, a creditor, a contributor or the official receiver if

: is satisfied that the company is unable to pay its debts within the meaning of Section 3 of the

asolvency Act. .

'he settlement of claims under company law in Uganda follows a given order. Preferential

ayments are to be paid in priority to all other debtors these include tax not paid to Uganda

57
{.evenue Authority for 12 months prior to the commencement of Insolvency , contributions

Jayable under the National Social Security Fund Act., all wage or basic salary , compensations

mder the workers compensation and expenses incun·ed by the liquidator. Non-preferential

lebtors are paid after preferential debts these include claims from secured and unsecured

:reditors. Under non-preferential payments, the claims rank equally and are paid in full unless

he assets are sufficient to meet them in which case why abate in equal propmiions. The surplus

s distributed to shareholders according to the type of shares held, first are the preference

:hareholders then the ordinary shareholders and lastly the deffered shareholders.

i.2 Findings

~he study dealt with the legal framework for dissolution of companies in Uganda portrayed the

ssues ofuncodified laws governing liquidation in Uganda. For instance the companies Act 2012

>rovides for Voluntary winding up of a company and the Insolvency Act 2011 also provides for

! oluntary liquidation but in different scenarios under the Companies Act there should be a

tatutory declaration of solvency in c~se of a proposal for voluntary winding up whereas !he

nsolvency Act 2011 does not provide any provision relating to that. This creates a conflict in the

1ws because Uganda lacks a clear procedure governing voluntary winding up/liquidation of

ompames.

'he study dealt with the circumstance under which a company can be dissolved under Ugandan

1w brought a realization that most companies undergo liquidation by court order or under

upervision of court due to the inability to pay their debts. Directors, creditors, shareholders and

ontributors can apply to court to make winding up when they are satisfied that the company is

58
mable to pay its debts. This is a major factor why compames m Uganda today undergo

iquidation.

[he study dealt with the consequences of dissolution of companies in Uganda brought a

ealization that claims of creditors during the liquidation process are paid in a given order.

'referential payments are paid in priority to all other debts then non- preferential payments

allow which rank equally among themselves. Preferential payments include; taxes, wages and

alaries and all expenses incurred by the liquidator. When there is a surplus after making

,referential and non- preferential payments the liquidator shall distribute the company's surplus

cgsets in accordance with the memorandum and articles of association of the company.

i.3 Recommendations.
Uganda should revise her company laws especially provisiOns regulating dissolution of

ompanies and come up with uniform and codified laws governing dissolution of companies in

Jganda.

Jganda laws have many untimely amendments that have a negative impact on companies

tability in business, so the legislator should adopt stable laws.

lefore declaring a company insolvent, there should be pnor assessment of the impact its

.issolution will have to different stake holders in the company and as such precautions should be

1ken in order to reduce or eliminate resulting consequences for instance the creditors of the

ompany can take part in the day to day affairs of the company not only by attending creditors'

1eetings bust also running the administrative functions of employees in order to pay the debts of

1e company.

59
rhe order of settlement of claims is abit unfair and unjust instances where preferential payments

ike taxes are paid before the claims from creditors. The government should come up with a

Jrocedure governing the settlement of claims that is fair and just for every party involved with

;!aims against the company.

60
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