Judicial officers asked to help distressed companies survive

Kampala, Uganda | THE INDEPENDENT | Judicial officers have been asked to support the survival of companies in distress instead of issuing decisions that lead to their extinction.

This comes as companies continue to struggle to pay off bank loans and other obligations like suppliers and salary arrears, and other lagging effects of the pandemic.

When a company becomes distressed for whatever reason, the likelihood is that it will find it harder to meet its obligations to creditors and lenders and even end up collapsing, or it will restructure its operations, debts and recover.

In Uganda, there are two laws, the Insolvency Act, 2011 and the Companies Act, 2012, which provide for certain business rescue mechanisms and liquidation proceedings.

However, according to business analysts, it is more advantageous for companies and creditors to consider business rescue over liquidation proceedings where this is viable.

In Uganda, both scenarios have happened and the liquidation of companies, the most prominent cases being the commercial banks, has had adverse effects on shareholders, creditors, and former workers among others.

Two companies that have prominently survived liquidation recently are Uganda Telecom which was put under administration and Crane Bank Ltd, which was rescued from liquidation by court.

Principal Judge Flavian Zeija says that most of the senior judges were trained under the old training and legal regime which put more emphasis on closing down a troubled company so that the claimants and shareholders share whatever is left of it. He says this must change.

Justice Zeija was speaking at the Insolvency Training for judicial officers on the theme: Emerging Trends in Corporate Restructuring in Uganda: What to Expect and how to Prepare, organized by the Uganda Registration Services Bureau.

He says that the Insolvency Act, 2011, has kept pace with global trends and provides for rescue mechanisms of administration and arrangements in respect of companies and individuals respectively.

“It is now possible for insolvent companies to seek protection from court and negotiate with their creditors to enable them to regain financial stability.

This process will involve engagement with a number of stakeholders including the shareholders, the directors, the creditors, insolvency practitioners as well as the courts of law,” he says.

Giving the example of Uganda Telecom, he says at whatever level of decline, a company should be helped to survive.

The Principle Judge laid the case for businesses that are in distress, saying that most times the businesses are not to blame due to the prevailing environment, hence the need to help them turn around.

Businesses that were most affected due to Covid 19 include educational institutions, with hundreds of them having been sold off or converted into other businesses, especially as owners sought to pay off loans.

However, many did not seek help from the legal system and ended up going under.

The Insolvency law and the procedures give confidence to the investors that in case of a problem, there can be a window of opportunity to restructure and get back to profit.

Francis Butagira, the Board Chairman Uganda Registration Services Bureau, URSB, says as the economy gets more formalized, the judiciary and all others concerned must be trained on the current trends in insolvency.

According to Court of Appeal Justice Geoffrey Kiryabwire, insolvency laws and the ability of a country’s judicial system to resolve commercial disputes and close a company, is one of the measures of the competitiveness of a country’s business environment, which is also used by investors to make their investment decisions.

However, he also admits that the judicial officers handling insolvency or related cases have always considered liquidation of a company as the only option, even if there were chances of survival if helped.

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