Question One: [Qn.

4 – DEC 2022]
WITH CLOSE REFERENCE TO THE INSOLVENCY ACT 2011, BRIEFLY DESCRIBE THE STAGES IN THE
PROCESS BY WHICH A DEBTOR IS DECLARED BANKRUPT AND ULTIMATELY OBTAIN HIS/HER
DISCHARGE TO START A NEW LIFE IN HIS/HER TRADE OR PROFESSION.
Answer:

In Black’s Law Dictionary 9th Ed at page 166, Bankruptcy is defined as a statutory

procedure by which a debtor obtains financial relief and undergoes a judicially supervised
reorganization or liquidation of the debtor's assets for the benefit of creditors. And “Bankrupt”
as a person who cannot meet current financial obligations or simply an insolvent person.

The law of bankruptcy in Uganda is now settled under the Insolvency Act No. 14 of
2011[As amended by 2022 amendment] and the Insolvency Regulations of 2013 (which
authorities I solely refer to here under). Bankruptcy may be voluntary – when initiated by the
Debtor himself/herself or; involuntary – when initiated by a Creditor.

Declaring a person bankrupt is a process which involve different stakeholders including; the
Debtor himself/herself, the Creditor, Court and Official Receiver. The following are the various
stages of declaring a debtor bankrupt and discharge of the bankrupt;

1. Bankruptcy petition:

Every bankruptcy starts with a bankruptcy petition presented either by a creditor or the debtor
themselves as highlighted under Section 20. The ground upon which this petition may stand, is
Debtor’s inability to pay his/her debts per Section 3. In order to show that the debtor is
unable to pay their debts, a creditor usually relies upon either the debtor's failure to comply
with a statutory demand under Section 4.

2. Court hearing of the Petition:

Upon lodging a bankruptcy petition in a form prescribed under the Regulations 8 & 9, the
court invites the Petitioner and interested parties per Regulation 17. The Petitioner is
required to prove the grounds to enable court determine whether to make a bankruptcy order
or not.

3. Appointment of an Official Receiver:

On the making of a bankruptcy order, the court will appoint an Official Receiver to take
control of the Debtor's property per Section 20(3). And, may exercise the powers under
Subsection 4, to sell or otherwise dispose of any perishable and any other goods unless
limited by court.

4. Submission of statement of affairs:

Section 21 read together with Regulation 21 requires the Debtor to file a statement of
affairs or whether the petition was presented by the Debtor, to attach such statement with the
petition. The Statement must be in Form 7 in Schedule 1 and contain among others;
particulars of Debtor’s creditors, debts, assets and other relevant information. The said
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statement of affairs should also be served to the Official Receiver within (7)working days after
filing it.

5. Public Examination of the Debtor:

Where a petition for a bankruptcy order is presented to the court, the court may under
Section 22 direct that a public examination be held. The Debtor is required to attend and be
publicly examined on his or her affairs, dealings and property on oath. Creditor(s), official
Receiver and Trustee (in case any has been appointed), may take part in the examination.

6. Creditors' meeting:

Creditors' meeting is then held at the discretion of the Official Receiver or at the request of
creditors who make up at least one quarter in value of the bankrupt's creditors. A trustee in
bankruptcy can be appointed at the Creditors' meeting per Section 25.

7. Vesting of debtor's property:

All of the Debtor's personal property would be treated as vested in the Trustee in bankruptcy
on the date of the bankruptcy order. The Debtor is only allowed to retain the basic essentials
for their trade and living.

8. Distribution of assets:

The Trustee’s fundamental duty under Section 29 is to collect, take control and distribute the
Bankrupt’s estate in accordance with the law. In practice, the Trustee may convert the debtor's
property into money, and use that money to pay the bankrupt's debts.

9. Termination of Bankruptcy:

Bankruptcy terminates; when a bankrupt is discharged from bankruptcy, when the bankruptcy
order is annulled; or upon withdrawal of a bankruptcy petition with leave of court per Section
41.However, Court cannot grant any application for withdrawal if it is proved to the
satisfaction of the court that rights and interests of other creditors are likely to be prejudiced.

10. Discharge of the Bankrupt:

A bankrupt can be discharged from bankruptcy, when the court, on an application by the
bankrupt makes an order discharging the bankrupt under Section 42. The court while
considering a bankrupt’s application for discharge, take into consideration the Official
Receiver’s report on the bankruptcy and the conduct of the bankrupt during the bankruptcy
proceedings and any other matters court may consider pertinent.

In conclusion, when the bankruptcy order is discharged, the bankruptcy comes to an end and
the bankrupt is released from most of their previous debts and freed from most of the
disqualifications that affect a bankrupt. Any property that has vested in the trustee in
bankruptcy remains so, and is not returned to the debtor.
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 Question Two: [Qn. 2 – DEC 2022]
CRITICALLY COMMENT ON THE RECENT INSOLVENCY LAW REFORMS WHICH HAVE BEEN DESIGNED
TO STREALINE INSOLVENCY REGIMES, DEBT RECOVERY MECHANISMS AND BUSINESS REHABILITATION
IN UGANDA. WHAT ARE CHALLENGES, IF ANY, FACING SUCH REFORMS?
Answer:

In Uganda, the years after independence witnessed application of several laws inherited from
our colonial masters. Among them included such principal legislations governing insolvency like
the Companies Act Cap 110, the Bankruptcy Act Cap 67 and the Deeds of Arrangements Act.

Other laws closely aligned to insolvency included the Mortgage Act, the Civil Procedure Act,
Registration of Titles Act, the Charters Transfer Act, the Income Tax Act, Limitation Act, 1959,
Debts Summary Recovery Act, 1937.

The Companies Act, Cap 110 provided for corporate insolvency and the Bankruptcy Act
governed personal insolvency. Both of these laws were antiquated being of 1948 and 1914
respectively. Generally, the law was scattered in different legislations.

Therefore, it was necessary to have a single legislation. The Uganda Law Reform Commission
spearheaded reform and published a draft for insolvency law in Uganda which culminated into
the Insolvency Act 2011.

This piece of legislation marked the core of a new Insolvency regime in Uganda. It is an exciting
development for the Insolvency Practitioners, Financial Institutions and other key business and
commercial players.

The essential objective of an effective insolvency system is the establishment of a protective

mechanism to ensure that the value of the estate's assets is not diminished by the actions of
various parties involved. The Act has the following objectives;

 To secure an equitable distribution of the property of the debtor among creditors according
to their respective rights against the debtor;

 To relieve the debtor of liability to the creditors and to enable the debtor make a fresh start
in life free from the burden of debts and obligations;

 To protect the interests of the creditors and the public by providing for the investigation of
the conduct of the debtor’s affairs and for the imposition of punishment where there has
been fraud or other misconduct on the part of the debtor.

The Insolvency Act, 2011 inter alia provides for receivership, administration, liquidation,
arrangements, bankruptcy the regulation of insolvency practitioners and cross border
insolvency as can be deduced from the Preamble.

Thus for the first time, all the five insolvency regimes were consolidated in one code with the
introduction of; arrangement and Administration.

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In 2022, amendment of insolvency laws was tabled before Parliament on August 12, 2022 and
subsequently assented to by the President on September 7, 2022 and, in effect, passed into law.

The Insolvency (Amendment) Act 2022 amends the 2011 Act on the premise that the
registration services bureau (URSB) has had a challenge of addressing the administrative and
operational shortcomings in the law and meeting international standards.

The 2011 Act further had inadequate provisions as well as contradictions that created
challenges in implementing the law and, as such, the 2022 amendments sought to cure these
defects in the law.

The key changes which were introduced include inter alia;

1. Cross border insolvency: The Act repeals the provisions of Part IX relating to cross border
insolvency and reciprocal arrangements. The rationale is to make the Act compliant with the
UNCITRAL Model Law on cross border insolvency, the World Bank recommendations on
the ease of doing business. As such the Act eliminates the hefty procedures and lowers the
cost of doing cross border business.

2. Unlawful dealing with assets: The Act under Section 19A creates an offence for a person
who conceals, disposes of, or creates a charge on the property or removes any part of it
with the intention of depriving or delaying creditor’s claims within two (2) years before the
commencement of insolvency proceedings.

3. Reduction of years of bankruptcy restrictions: The Act amended Section 45(3)(b) to reduce
the period in respect of restrictions on a discharged bankrupt from 5 to 2 years. The
rationale is to reduce stigmatization and encourage rehabilitation of bankrupts.

4. Post-arrangement and Administration financing: The Act inserted Sections 126A & 164A
which allows the Supervisor & the Administrator respectively, with the consent of the
creditors and with the approval of court, to obtain or borrow finances and grant security
over the property of the debtor for purposes of implementing an arrangement or
administration deed. However, the Act provides that such financing should not exceed the
value of debtors’ unencumbered assets at the time of arrangement or administration.

5. Interim protective order by creditor: The Act also inserted Sections 137A & 174A which
grants rights to a creditor to apply for an interim protective order or a provisional
administrator respectively.

I wish to note as I wind up, that, the world has drastically changed from the old days when debt
was perceived as a curse or an unfortunate state to, a current regime which recognizes debt
and inability to pay as a normal and a common state of affair. Most importantly, a special
consolidated code has been put in place to settle the indifferences which may exist between a
creditor and a debtor (who is either able but unwilling to pay or unable to pay the debt).

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 Question Three: [Qn. 8 – DEC 2022]
THE DIRECTORS OF BISOBYE ENTERPRISES LTD ARE IN FINANCIAL DIFFICULTIES ARE ADVISED BY THEIR
FINANCIAL ADVISERS THAT THEIR COMPANY MAY BE INSOLVENT. THEY SEEK YOUR ADVICE AS TO
THE PROCESS INVOLVED IN PLACING THE COMPANY INTO VOLUNTARY WINDING UP, THE POWERS
OF THE LIQUIDATOR AND ANY POSSIBLE CONSEQUENCES OF VOLUNTARY WINDING UP IN
GENERAL. ADVISE THEM ACCORDINGLY WITH SUPPORT OF RELEVANT AUTHORITIES.
Answer:

According to Black’s law Dictionary 9th Ed at page 1738, Winding up is a process of

settling accounts and liquidating assets in anticipation of a corporation's dissolution. Simply put,
winding up refers to the process of dissolving a company by selling its stock and assets in order
to pay off creditors.

The voluntary winding up may either be; Member’s voluntary liquidation – this is for a solvent
company (can pay its debts) initiated by the company members OR Creditors’ voluntary
liquidation – this is for an insolvent company (unable to pay its debts) initiated by members of
the company after meeting the creditors of the company.

A members’ voluntary winding up is possible only when the company is solvent and is able to
pay its debts in full. In this case, it is not necessary for the members to consult the creditors or
to call their meeting. A Declaration of Solvency is prepared by the directors.

The declaration must be made in a meeting of the Board of Directors. It should be made by a
majority of the directors and certified by an affidavit. It must also be accompanied by a
statement of assets and liabilities up to the date of declaration.

The following procedure should be adopted in case of Members’ Voluntary Winding up.

1. Holding of the general meeting: After filing the Declaration of Solvency, the Directors should
arrange to convene a meeting of the company and a resolution should be passed to this
effect per Section 58 of the Act.

2. Appointment of liquidators: A resolution should also be passed in the same meeting appointing
one or more liquidators. The members should also fix the remuneration of the liquidator
per Section 62(1) of the Act.

3. Notice to be Published in the Gazette and give to the Registrar: under Section 59 of the Act, a
notice of a resolution for voluntary liquidation must within (14) be published in a Gazette
and in a newspaper in the official language with a wide national circulation. Also a notice of
appointment of the liquidator is required to be given to the Registrar within (10) days from
the date of appointment.

4. Powers of the Board: As soon as the liquidator is appointed, all the powers of the Board of
Directors come to an end. However, the liquidator or the members may allow them to
continue for the beneficial winding up of the company per Section 62(2) of the Act.

5. Reconstruction in winding up: Generally, the liquidator takes charge of all the assets of the
company, convert them into cash and pay the money first to the creditors and then to the

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 members, if any surplus is left. But sometimes, instead of selling the property of the company
for cash, he may sell the assets of the company for shares in another company.

6. Holding of the General Meeting at the end of the First Year: Where the process of liquidation
continues for more than one year, the liquidator must call for a general meeting at the end
of the first year and also at the end of each subsequent years. He must submit before the
meeting, an account of his acts and the progress of winding up during the year.

7. Final meeting of the members: As soon as the affairs of the company are fully wound up, the
liquidator should call for a meeting of the members by giving an advertisement in the Official
Gazette. The notice must be given at least one month before the date of the meeting. It
should specify the time, date and plan of the meeting. The liquidator should submit before
the meeting an account of the winding up showing how the winding-up has been conducted;
and how the company’s property has been disposed of.

8. Notice to the Registrar and official receiver: The liquidator, within one week after the date of
the meeting, should send a copy of the account along with a return of the meeting, to the
Registrar of Companies and also to the official liquidator attached to the concerned High
Court.

9. Duty to call for the creditors’ meeting: If, in the opinion of the liquidator, the company will not
be able to pay its debts in full, within the period specified in the Declaration of Solvency, the
Liquidator should immediately call for a meeting of the creditors of the company. He should
submit a statement of affairs of the company before the meeting. Thereafter, the winding up
ceases to be a members’ voluntary winding up but proceeds in accordance with the
provisions applicable to the creditors’ voluntary winding up.

When a liquidator is appointed, the directors there and then ceases to control the affairs of the
company except if it is permitted by court, or even act on behalf of the company. In the event,
they must instead disclose fully and truthfully to the liquidator all the property of the company
and details of the disposal of any property by the company and also, deliver all property of the
company in or under their custody or control to the liquidator.

The consequences of winding up as espoused under Section 60 of the Act is that the company
ceases all of its business activities, except those required for the beneficial winding up of the
company though, the corporate status and powers of the company, notwithstanding anything to
the contrary in its articles, continue until it is dissolved.

However, winding up is also beneficial in a way that the legal obligations imposed on the
company such as filing returns to both URSB & URA immediately cease, the company enjoys a
sufficient degree of protection against execution or other legal processes, protects the interests
of creditors among others.

Bearing the above in mind, I wish to wrap up my advice to directors of Bisobye Enterprises Ltd
with an opinion that, voluntary winding up of a company in Uganda is a good form of winding up
as it allows the company to settle any issues at its own pace and avoids orders and directions of
Court.
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 Question Four: [Qn. 4 – DEC 2021]
DAVE & FRANK HAVE BEEN RUNNING A RETAIL COMPANY MOONLIGHT LTD FOR MANY YEARS. AS A
RESULT OF THE ECONOMIC CRISIS THEIR SHOPS ARE NOT TRADING WELL AND THEIR BUSINESS
DEBTS ARE INCREASING. THEIR BANK IS TALKING ABOUT APPOINTING AN ADMINISTRATOR. THEY
HAVE BEEN NEGOTIATING WITH THEIR TRADE CREDITORS. SOME OF THEM ARE WILLING TO DO A
DEAL AND COMPROMISE THEIR DEBTS. A SMALL
NUMBER OF CREDITORS WILL NOT, AND THREATENING A WINDING UP ACTION.

WITH SUPPORT OF RELEVANT AUTHORITIES, ADVICE DAVE AND FRANK ON THE STEPS AND
PROCEDURES INVOLVED IN THE COMPANY GETTING INTO ADMINISTRATION AS OPPOSED TO
COMPULSORY WINDING-UP AND IT’S EFFECT ON THE OPERATIONS OF THE COMPANY.
Answer:

Justice Stephen Mubiru in HCMCA No. 12/2018, UTL v. Ondoma Samuel T/a Alaka &
Co. Advocates; discussed at length the cluster of Administration in insolvency law.

He defined “administration” as a rescue mechanism for insolvent companies, which allows them
to carry on running their business, in order to stabilize the company’s position and maximize its
chances of continuing in business as an alternative to liquidation or a precursor to it.

He observed that a company seeks provisional administration with an aim of ensuring its
survival and that the procedure is designed primarily to deal with situations when there is an
urgent need to protect the value of a business from enforcement action by unpaid creditors.

In other words, to hold a business together while plans are formed either to put in place a
financial restructuring to rescue the company, or to sell the business and assets to produce a
better result for creditors.

Below are the steps taken by a company while entering into administration as laid down under
the Insolvency Act 2011(as mended by 2022 Act) and the Regulations of 2013;

1. Special Resolution:

First and foremost, the company must in special meeting of Board of Directors, resolve to
make a settlement with its creditors and a special resolution should be passed to that effect per
Section 139(3) of the Act.

2. Petition for an Interim Order:

The company then, after agreeing to make a settlement, proceeds to petition court for an
interim order. With the new amendment of Insolvency Act 2022, Creditors also enjoy this right
to bring such petition under Section 174A of the Act and in case they do, then the following
steps remain the same but with necessary modifications. This order unless extended, lapses
within a period of not more than (30) as provided under Section 145(1)(a) of the Act.

3. Appointment of a provisional Administrator:

Upon issuance of an interim order, a provisional administrator is appointed under the spirit and
letter of Section 139(1) of the Act. The Provisional Administrator’s general obligation as
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stated under Section 141 is to marshal (collect and take control) of the properties and/or
affairs of the company and investigate all the affairs of the company.

4. Notice of provisional administration:

A Provisional Administrator then must give notice of the provisional administration on every
invoice, order for goods or business letter issued by or on behalf of the company on which the
company’s name appears, by stating after the company’s name “in provisional administration”
per Section 144 of the Act.

5. Creditor’s First Meeting:

The Provisional Administrator must call for a meeting of creditors to confirm his/her
appointment with (10) days from the date of issuance of interim order per Section 146 (1).

6. Creditor’s Second Meeting:

The Provisional Administrator must call for another meeting within (15) days from the date of
issuance of interim order per Section 145 (2). It is in this second meeting that, a Provisional
Administrator submit to them a proposal to which, they may resolve either to execute an
administration deed or to end the provisional administration and liquidate the company as
provided under Sections 147 and 148 of the Act.

7. Administration Deed:

In case the creditors resolve to execute an administrative deed, then the same is executed by
the company and the proposed administrator following provisions of Section 149 and 150 of
the Act. The case UTL v. Ondoma Samuel [Supra] suggests that the administration deed is
in the nature of a binding agreement between the company and its creditors about payment of
all, or part of, its debts over an agreed period of time, designed to either salvage the company
or distribute the company’s assets.

The process of administration commences with the execution of the administration deed and
the appointment of an administrator per Section 162 of the Act. And upon its
commencement, the administrator is required under Section 163 to give notice to each
creditor, the Official Receiver, Court and the general public.

Administration deed can be varied by a resolution passed at a Creditors’ meeting according to

Section 167 and the administration process can as well be terminated by a court order or
circumstances specified in the deed itself per Section 168 of the Act.

As I wind up, the effect of administration as espoused under Section 164 of the Act is that,
once executed; it binds all the company, its directors, shareholders, the administrator and
creditors in relation to claims arising on or before the day specified in the deed as was re-
emphasized by Justice Duncan Gaswaga in ZTE Corporation v. UTL (In Admnistration).
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 Question Five: [Qn. 5 – MAY 2021]

CONSIDER THE LEGAL EFFECT OF ABC GLOBAL LTD GOING INTO PROVISIONAL DMINISTRATION
AND ALSO SET OUT THE MAIN TASKS THAT IS EXPECTED OF THE PROVISIONAL ADMINISTOR IN THE
FIRST 6 MONTHS IN SUCH OFFICE.
Answer:

Provisional administration commences with a special resolution passed by a company resolving

that the company enters into settlement with its Creditors. Within the same meeting, the
company may appoint a Provisional Administrator as provided under Section 139 of
Insolvency Act 2011(as amended).

Justice Stephen Mubiru in HCMCA No. 12/2018, UTL v. Ondoma Samuel T/a Alaka &
Co. Advocates; observed that a company seeks provisional administration with an aim of
ensuring its survival and that the procedure is designed primarily to deal with situations when
there is an urgent need to protect the value of a business from enforcement action by unpaid
creditors.

The company then, after agreeing to make a settlement, proceeds to petition court for an
interim order and upon issuance of the same, the company official goes into provisional
administration per Section 142 of the Act.

Legal effect of provisional Administrator:

Once the company goes into provisional administration, the following takes effect as stipulated
under Section 143 of the Act;

First of all, during a provisional administration an application for the liquidation of the company
by the court cannot be commenced nor the appointment of a Receiver of any property of the
company.

Secondly, the functions and powers of any Liquidator that is in case the company has been in
liquidation are immediately suspended.

Thirdly, except with the Provisional Administrator’s written consent or with the leave of the
court and in accordance with such terms as the court may impose; no charge, proceedings,
execution or other legal process can be commenced or continued against the company or its
property.

Last but not least, the power of the directors of the company ceases and as such, no
transaction and/or arrangement can be made on behalf of the company without the express
authorization and/or consent of the Provisional Administrator.

And lastly, the company adopts a new name as reflected by the wording of Section 144 of the
Act which is to the effect that a notice must be given of the provisional administration on every
invoice, order for goods or business letter issued by or on behalf of the company on which the
company’s name appears, by stating after the company’s name “in provisional administration”.

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Role of a Provisional Administrator:

Once appointed, a Provisional Administrator take on a fundamental duty as stipulated under

Section 140 of the Act, to investigate the company’s business, property, affairs and financial
circumstances.

The foregoing fundamental duty is accompanied with general duties highlighted under Section
141 which include inter alia; duty to take custody and control of all the property to which the
company is or appears to be entitled.

It should be noted at this point that, provisional administration ordinarily is supposed to take
not more than (30) days from the date of issuance of the interim protective order per Section
145 of the Act unless the time is extended by court on an application by the Provisional
Administrator.

Thus, within that timeline, the Provisional Administrator must call for the first meeting of
creditors to confirm his/her appointment. This meeting is specifically held with (10) days from
the date of issuance of interim order per Section 146 (1).

Soon thereafter, within (15) days from the date of issuance of interim order, Provisional
Administrator must call for another meeting of creditors to considers his proposal per Section
145 (2).

In the said second meeting, the Provisional Administrator is required to chair the same and
professionally advise the creditors on whether putting the company in administration is in the
interest of both the company and creditors.

If the Creditors vote in favour of execution of administration deed, the Provisional

Administrator is required to prepare the administration deed per Section 150.

In conclusion, provisional terminates once the creditors and company executes the
administration deed. The effect of an administration deed as espoused under Section 164 of
the Act is that, once executed; it binds all the company, its directors, shareholders, the
administrator and creditors in relation to claims arising on or before the day specified in the
deed. It is therefore binding on all the members, unsecured creditors and any secured creditors
of the company who consent to being bound, who had notice of the meeting and were entitled
to vote.

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 Question Six: [Qn. 2 – MAY 2022]

VOIDABLE TRANSACTIONS

Answer:

In the Matter of Maria K Mutesi Bankruptcy Petition No. 5 of 2011 court stated that
proceedings in bankruptcy are meant to compulsorily administer a person’s estate for the
benefit of his or her creditors generally.

The primary objective of bankruptcy law thus, is to administer the estate of an insolvent so as
to enable him or her pay his or her debts. The law facilitates a fair and equal distribution of
available property of the petitioner among the creditors.

This is why, upon the making of a bankruptcy order, the bankrupt’s estate vests first in the
official receiver and then in the trustee per Section 27 of the Insolvency Act – 2011 (IA).

The above may however be a bit challenging in practice especially when a Debtor intentionally
dispose of their known properties with an aim of depriving their Creditors what is due. This is
the spirit behind enactment of Sections 15 to 19 of IA which deals with voidable transactions.

A voidable transaction is a payment of money, transfer of property or other transaction from a

person's assets to a related or unrelated third party that either occurs at a time when such
person was insolvent or otherwise causes a detriment thereto.

Originally Sections 15 to 19 of IA were only applicable to Bankruptcy and Liquidation regimes

but, with the 2022 Amendment, they apply to all the (5) insolvency regimes (Bankruptcy,
Liquidation Receivership, Arrangement & Administration).

Firstly, for a transaction to be declared a voidable one, it must have been made within a period
of (1) year before the commencement of insolvency proceedings by or against the Debtor and
secondly, the person with whom the Debtor enters into a transaction shouldn’t be a bona fide
purchaser for value without notice.

The following transaction as reflected in Sections 16 to 18 can be declared voidable by court

on an application brought by a creditor, receiver, liquidator, member, contributory,
administrator, supervisor or trustee;

1. Preferences:

A transaction under Section 15, that involves a transfer of property by a company or

individual to another person is voidable where; the transfer is made on account of an
antecedent debt and at a time when the company or individual was unable to pay the company’s
or individual’s due debts; OR enabled that person to receive more towards the satisfaction of
the debt than the person would otherwise have received or be likely to receive in the
liquidation or bankruptcy, unless the debt was incurred in the ordinary course of the company’s
or individual’s business and the transfer was made not later than (45) working days after the
debt was incurred.
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 2. Transactions at undervalue:

Under the general law of contract, consideration need not to be adequate for there to be a
valid contract. However, a significantly less consideration meant to aid the insolvent to put the
asset beyond the reach of the creditors, is per Section 16 undervalue for which a declaration
that the transaction is voidable, can be made.

3. Voidable charges:

Likewise, a transaction providing for or creating a charge over any property of a company or
individual in respect of any debt under Section 17, can be declared voidable unless it is proved
that the charge secures the actual price or value of property sold or supplied to the company
or individual or that the charge is in substitution for another charge which was given more than
one year before the commencement of any insolvency proceedings.

4. Insider dealings:

Also, a transaction entered into by a company or individual relating to any asset of the insolvent
may be declared voidable under Section 18 if such transaction involves a relative of the
insolvent or any person with a close social proximity to the insolvent, employees, officers,
professional or other service providers of the insolvent, business associates, partners,
shareholders, directors or other similar person.

Setting aside voidable transaction:

The procedure for challenging the foregoing transactions is precisely noted under Section 19
and Regulation 189 of Insolvency Regulations 2013. An insolvency Practitioner (Liquidator,
Administrator, Trustee, Supervisor, or Receiver) or a Creditor, Member or Contributory; who
wishes to have a voidable transaction under Sections 15, 16, 17 or 18 set aside should file in
court a notice to that effect.

The said notice should be supported by an affidavit setting out how the transaction falls within
Section 15, 16, 17 or 18 and why the court should set it aside. A copy of the notice, after
being endorsed by court should be served on the parties to the transaction and every other
person from whom the Liquidator, Administrator, Trustee, Supervisor, or Receiver wishes to
recover.

And, any person served with a notice may, by notice of motion supported by an affidavit, apply
to court within (14) working days after receipt of the notice for an order to stay the setting
aside of the transaction.

In conclusion I wish to associate myself with the observation of Justice Stephen Mubiru in Bank
of India (U) Limited v. NC Beverages Ltd & URA [2022], that provisions prohibiting
fraudulent transfer are designed to enhance the total amount of distribution.

Insolvency Law Common Qns & Ans – By Elders' Council Page 12

“The answers herein are not marking guide – Consume them mutatis mutandis with your Lecturer’s highlights or
guidelines and the relevant laws”
 Problem Question One: [Qn. 1 – DEC 2022]

A. BRIEF FACTS:

Mr. Kamonde runs an ICT Business. His major project is the development of a Website for Mr.
Nkode. He finishes the project and renders his Tax Invoice for Shs. 20,000,000/=. The Project
has been plagued by delays and cost overruns, with each party blaming the other. When Nkode
fails to pay, Kamonde prepares a Statutory Demand under the Insolvency Act. The Demand is
served through WHATSUP message. Prior to being served with the Demand, Nkode had sent
numerous letters to Kamonde complaining about the quality of the services and the amount
claimed in the invoices which he said had been overcharged. Nkode is livid and consults you,
wanting to know every possible avenue for contesting the Statutory Demand.

B. LEGAL ISSUES:

1. WHAT POSSIBLE GROUNDS ARE AVAILABLE UNDER THE CIRCUMSTANCES TO

CONTEST THE STATUTORY DEMAND?

2. WHAT ARE THE CONSEQUENCES OF FAILING TO CHALLENGE THE STATUTORY

DEMAND?

C. LAWS APPLICABLE:

1. The Insolvency Act, 2011 (as amended).

2. The Insolvency Regulations, 2013.
3. All Relevant Case Law.

D. APPLICABILITY OF THE LAW:

IN RESOLUTION OF ISSUE ONE: What possible grounds are available under the
circumstances to contest the Statutory
Demand?

The law on the nature and/or content, mode of service and grounds for setting aside of a
statutory demand is now well settled under Sections 4 & 5 of Insolvency Act (IA) read
together with Regulations 4, 5 & 6 of the Insolvency Regulations – 2013 (IR).

Firstly, a statutory demand must specify inter alia, the amount of the debt owed and in the case
the debtor is an individual, then he should be a judgment debtor. Implying that, a suit for
recovery of a debt must have been filed and judgment made in favour of the Creditor.

Justice Musa Ssekaana in Deox Tibeingana v. Numbers Finance & Investment Co Ltd
HCMC NO.101 OF 2019; while interpreting the above position of the law observed that a
statutory demand cannot issue against an individual without a judgment or the debtor being
found liable under a judgment.

Insolvency Law Common Qns & Ans – By Elders' Council Page 13

“The answers herein are not marking guide – Consume them mutatis mutandis with your Lecturer’s highlights or
guidelines and the relevant laws”
Secondly, a statutory demand must be served personally on the debtor save, where the debtor
cannot be found, the demand may be served on the debtor at the registered office or place of
business of the debtor; by sending it to the address of the debtor by registered mail; by serving
the legal representative of the debtor, if known; or, in any other manner determined by the
court.

Upon effecting service, an affidavit of service must be sworn by the service officer as proof of
service of a statutory demand stating the time and manner of service.

Justice Musa Ssekaana in Bahadukali Mohammed v. Springs International Hotel Ltd

HCCC NO.005 OF 2019; stressed that statutory demand is not merely a document like an
ordinary letter, that is has far reaching consequences and that non – effective service of the
same makes the petition incompetent.

That having been said, Lady Justice Margaret Mutonyi in Mian & Another v. Exim Bank (U)
Ltd HCMA No. 497 OF 2017, opined that court may grant an application to set aside a
statutory demand if its satisfied that any of the grounds under Section 5(4) of the IA is
present among which is, dispute as to whether the debt is owing or due.

Besides the above grounds, in determining whether the statutory demand ought to be set aside
on the merits, courts have applied a test laid down in the case of Tan Eng Joo v United
Overseas Bank Ltd [2010] 2 SLR 703, to the effect that a statutory demand ought to be
set aside if there are triable issues to go for trial.

From the facts at hand, Mr. Kamonde made a demand before he obtained a judgment on the
same, the demand was in respect of the debt which Mr. Nkode is disputing to be owed and was
no effectively served. All these constitute probable grounds for challenging/contesting the
demand.

IN RESOLUTIN OF ISSUE TWO: What are the consequences of failing to

challenge the statutory demand?

It is trite law that a Debtor’s failure to comply with or to challenge a Statutory Demand is a
presumption of his inability to pay debts under Section 3(a) of IA. And, the moment a Debtor
is presumed unable to pay his debts, a petition for bankruptcy may be brought against him
under Section 20 thereof and upon issuance of a Bankruptcy order, the Estate of the Debtor
(now Bankrupt) vests in the Official Receiver and latter into the Trustee who takes control of
the same, sell them and distribute the proceeds to the Creditors per Section 27.

However, the moment a Debtor lodges an application challenging the Statutory Demand, a
petition for Bankruptcy cannot be presented until the said application is determined per
Regulation 6 (3) of IR, 2013.

E. CONCLUSION:

My advice to Mr. Nkode in conclusion would be, to lodge an application within (10) by way of a
Notice of Motion supported by an affidavit in the High Court of Uganda, for setting aside of the
Statutory Demand basing on the grounds discussed herein above.
Insolvency Law Common Qns & Ans – By Elders' Council Page 14

“The answers herein are not marking guide – Consume them mutatis mutandis with your Lecturer’s highlights or
guidelines and the relevant laws”