Background
When the Ugandan government commissioned the Uganda Law Reform Commission (ULRC) to review and make recommendations for reform of Uganda’s company and insolvency laws at the turn of the millennium, the business and legal sectors had envisaged a future that represented modern insolvency laws and procedures that could foster business growth, continuity and support where businesses experienced financial difficulties. This was because, since Uganda’s independence from the British rule in 1962, the main legislation that dealt with corporate insolvency and bankruptcy matters, the Bankruptcy Act 1931 and Companies Act 1961 were over seventy and forty years old respectively. They were also complete replicas of the English Bankruptcy Act 1914 and the English Companies Act 1948. Therefore, the provisions that they prescribed on corporate insolvency and business rescue did not match modern insolvency challenges. Thus, a review was top of the agenda.
Law Reform
The review by the ULRC led to the tabling of the Insolvency Bill in 2009 and that led to the enactment of the Insolvency Act 2011 (‘IA 2011’). The aims and objectives of the IA 2011 are summarised in the Preamble as:
“[A]n Act to provide for receivership, administration, liquidation, arrangements, bankruptcy, the regulation of insolvency practitioners and cross border insolvency; to amend and consolidate the law related to receiverships, administration, liquidation, arrangement and bankruptcy; and to provide for other related matters.”
The Insolvency Act 2011 prescribes processes, such as provisional administration,[1] administration,[2] voluntary arrangements,[3] receivership,[4] liquidation[5] and cross-border insolvency proceedings.[6] The IA 2011 is supplemented by the Insolvency Regulations 2013 (IR 2013) that regulate and guide insolvency proceedings and the Companies Act 2012 which prescribes provisions that deal with creditor compromises and arrangements,[7] reconstructions and amalgamation[8] and voluntary winding-up.[9] The IA 2011 therefore, forms the bedrock of Uganda’s modern insolvency framework.
Impact of the Reforms
There was great optimism from extant stakeholders and policy makers within the business and legal spheres that the rescue procedures introduced by the IA 2011 would invigorate corporate rescue. A decade since its passage however, the impact of the insolvency law reform, especially on shaping Uganda’s corporate rescue and rescue culture remains to be seen. Hundreds of businesses and companies collapsed in the years prior to the outbreak of the global COVID19 pandemic and many are projected to collapse due to financial difficulties exacerbated by the impact of the pandemic.
The then-new administration procedure introduced features such as moratoria protection and inclusivity of collective creditor interests when the company, in which they held interests, filed for insolvency proceedings. Despite these safeguards in the law, administration, as a collective procedure, has neither been fully embraced nor used by the business/corporate sector. Its adoption and usage, as well as those of other formal corporate rescue processes has been relatively low. There has been a particular preference from financially struggling businesses and professional insolvency practitioners for receivership and administrative receivership over administration, even though most receivership proceedings result in the liquidation of distressed companies.
Recommendations
Owing to the foregoing, this piece makes the following calls for the reinvigoration corporate rescue in Uganda, so that the policy objectives of the IA 2011 as envisaged by the ULRC and transposed into the IA 2011 could be achieved.
- The law ought to be modified to support business continuity as one of the main objectives of corporate rescue. To that end, debtors should be given the opportunity to make a fresh start – a so-called second chance culture (discharge), and opportunities to restructure potentially viable businesses. The latter would be achieved in the form of preventive restructuring opportunities through the introduction of preventive insolvency frameworks in Uganda’s insolvency model. Unfortunately, though these objectives are largely missing, there are no planned reviews tabled by the ULRC at the time of writing.
- The office of the Official Receiver, who is the government regulator on matters relating to company registrations, insolvency, and receiverships, should raise more awareness on matters relating to company administration and insolvency, such that the policy objectives of corporate rescue as sought by the IA 2011 are well articulated to the main actors and stakeholders in the sector to reinvigorate corporate rescue.
Hamiisi’s full thoughts on this topic will be published by the Insolvency Intelligence in 2022: Hamiisi J. Nsubuga, ‘Reinvigorating Corporate Rescue in Developing Economies – A Ugandan Perspective’ [2022] 2 Insolvency Intelligence.
His presentation on the topic at the inaugural CLRNN Spotlight on Corporate Governance and Insolvency Law can be found below.
Dr Hamiisi J. Nsubuga is a Lecturer in Law at Middlesex University London. His research areas are: Corporate Law, International Corporate Law, Comparative Insolvency Law (UK, USA and Uganda) and Comparative Labour Law and Legal Theory.
To join the CLRNN Spotlight on Corporate Governance and Insolvency Law in Africa seminar series, mail: info@clrnn.net.
[1] IA 2011, Part VI, ss.139 – 161.
[2] IA 2011, ss.140 – 162.
[3] IA 2011, ss. 125 – 137.
[4] IA 2011, Part VII, ss. 180 – 197.
[5] IA 2011, ss. 56 – 124.
[6] IA 2011, Part IX, ss. 212 – 252.
[7] CA 2012, s.234.
[8] CA 2012, ss. 236 – 245.
[9] CA 2012, Part XI, ss.268 – 272.