New law to rescue the bankrupt

Sep 28, 2014

Government is finalising regulations to operationalise a law that will guide individuals or companies seeking to declare bankruptcy.


By Taddeo Bwambale                                 
 
KAMPALA - Government is finalising regulations to operationalise a law that will guide individuals or companies seeking to declare bankruptcy.
 
Bankruptcy is a state in which an individual or company can no longer meet their debt obligations on time as they fall due.
 
Uganda enacted the Insolvency Act in 2011 and it came into force in July 2013. The law allows for receivership, administration, liquidation in cases of insolvency.
 
It is intended to protect assets and interests of all parties that may be affected by the company or individual’s financial distress, including employees, creditors or suppliers. 
 
Under the law, an individual or company can petition court for bankruptcy if they are unable to pay their debts, for which court may grant a bankruptcy order.
 
Once declared bankrupt, an Official Receiver takes control of the debtor’s assets and has powers to make business transactions on behalf of the debtor.
 
Legal experts at a judges’ meeting to review draft regulations to operationalise the Act on Thursday proposed the establishment of a special court to handle rising cases of bankruptcy.
 
Kabiito Karamagi, an expert in insolvency litigation argued that a special court for bankruptcy given the process of applying for bankruptcy is complex and relatively new.
 
“Many people or companies weighed down by debt often go into hiding or end up borrowing heavily to service debts, even when it is not sustainable.”
 
“Given the intricate process of declaring bankruptcy, an insolvency court would provide flexible and timely support for affected parties to resolve their matters in confidence,” said Karamagi.
 
The expert also suggested that having a special court would enhance privacy of persons seeking to apply for bankruptcy and prevent advance action of creditors.
 
However, some judges took exception to the proposal, noting that the creation of a specialised court would require a lot of resources to set up, an amendment to the law and rules of procedure.
 
“The Constitution is clear on open court proceedings and when there can be exceptions. Besides, building the capacity of judicial officers for the new court takes time,” observed Justice David Wangutusi, the head of the Commercial Court.
 
The regulations also cover application for cross-border insolvency and are expected to be endorsed by the Chief Justice before they come into force.
 
The acting Chief Justice, Steven Kavuma told the judges that there is need to harmonise Uganda’s insolvency Act with those of countries in the East African Community and beyond.
 
“Insolvency laws in Uganda have not kept pace with commercial and financial trends and are generally ill-equipped to deal with cases of cross-border nature,” he noted.
 
“An effective insolvency law will promote the efficient valuing of companies and distribution of assets in case of insolvency, thus allowing them to be put to productive use.”
 
Mercy Kyomugasho, a director at the Uganda Registration Services Bureau (URSB), said the regulations would help the agency to investigate companies that declare bankruptcy. 
 

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