Brood 2 B.V & 2 Others v Brood (U) Limited (Winding Up Cause 5 of 2023) [2024] UGCommC 338 (13 November 2024)

5 THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

[COMMERCIAL DIVISION]

WINDING UP CAUSE IP NO. 0005 OF 2023

IN THE MATTER OF THE INSOLVENCY ACT 2011

10 IN THE MATTER OF THE INSOLVENCY REGULATIONS S. I NO. 36 OF 2013

AND

IN THE MATTER OF WINDING UP BROOD (U) LIMITED (IN LIQUIDATION) BY CREDITORS

1. BROOD 2 B. V

15 2. JOMARPA HOLDING B. V PETITIONERS 3. PEACE BREAD HOLDING B. V

VERSUS

BROOD (U) LIMITED ::::::::::::::::::::::::::::::::::::::::::::::::::::::: RESPONDENT

BEFORE HON. LADY JUSTICE HARRIET GRACE MAGALA

20 JUDGMENT

Introduction

This Petition was brought under section 78 of the Insolvency Act No. 8 of 2011

(now Cap 108), Regulations 85 and 86 of the Insolvency Regulations S. I No. 36 of

2013 (as amended by the Insolvency (Amendment) Regulations 2023, S. I N0. 76 of

- 5 2023), section 98 of the Civil Procedure Act Cap 71 (now Cap 282) and section 33 of the Judicature Act Cap 13 (now Cap 16). The Petitioners sought for orders that: - (a) The Company be wound up by the court; - (b) The Court makes an order for the liquidation of the company; - (c) The Liquidator Tumwebaze Elias be appointed to take over the affairs of the - 10 company and liquidate the same company in accordance with the law; and (d) Such orders as may be necessary and just in the premises.

The Petition was supported by two affidavits sworn by Mr. Johannes C. J. Pater, a shareholder in the 2nd Petitioner and Mrs. Renate C. Pater, a shareholder in the 1st and 2nd Petitioners, wherein they briefly stated that:

- (a) The Respondent company was incorporated in Uganda on 25th 15 August 2010 and has its registered office in Kampala; - (b) The Petitioners gave the Respondent a loan of EUR 850,000, that is the equivalent of UGX. 3,344,999,526/= on 8th June 2011 to help the company with its operations in Uganda but has failed to repay it; - (c) On the 19th and 20th 20 February 2023, the Petitioners served the Respondent with a statutory demand and reminder for payment of the debt but the Respondent has failed to comply with it; - (d) There is no application to set the statutory demand aside pending before this honorable court or any other court; - 25 (e) The Respondent has failed to pay its debts and is therefore insolvent; - (f) Through this petition, the Court should appoint Tumwebaze Elias, an insolvency practitioner licensed by Uganda Registration Services Bureau, as

5 their liquidator; and that once the Respondent company is wound up, it's properties can be sold off to pay all the creditors.

Appearance and representation

The Petitioners were represented by M/s Mugarura, Kwarisiima & Co. Advocates while the Respondent was represented by M/s KGN Advocates. Both parties filed 10 written submissions which have been duly considered.

Issues for determination

- 1. Whether the petition raises grounds for winding up the company - 2. What remedies are available for the parties?

Determination

15 A company is said to be insolvent if it is unable to pay its debts and upon court being satisfied that the requirements under sections 2 and 92(1) (a) and (2) of the Insolvency Act Cap. 108, Regulations 85(1) & (2) and 86 of the Insolvency (Amendment) Regulations 2023, S. I N0. 76 of 2023 have been met.

Section 2(1) & (2) of the Insolvency Act Cap 108 provides that:

- 20 *"(1) Subject to subsection (2) and 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;* - *b) the execution issued against the debtor in respect of a judgment debt has been returned unsatisfied in whole or in part; or*

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5 *c) all or substantially all the property of the debtor is in possession or control of a receiver or some other person enforcing a charge over that property.*

> *(2) On a petition to the court for the liquidation of a company or bankruptcy order, evidence of failure to comply with a statutory demand by the*

10 *creditor, shall not be admissible as evidence of inability to pay debts unless the application is made within thirty working days after the last date for compliance with the demand."*

Section 92 of the same Act provides that:

*"(1) Subject to subsection (2), the court may appoint a liquidator on the* 15 *application of-*

*(d) a creditor of the company;*

*(2) The court may make an order under subsection (1), if it is satisfied that the company is unable to pay its debts within the meaning of section 2."*

With regard to this petition, Regulation 85 (1) and (2) of the Insolvency

20 Regulations S. I No. 36 of 2013 as amended by the Insolvency (Amendment) Regulations 2023, S. I N0. 76 of 2023) provides that:

> *"(1) A petition for the liquidation of a company may be presented to the court by-….:*

*(d) a creditor of the company;*

25 *(2) A petition to liquidate a company may be presented to the court where the company-*

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5 *(a) has been served with a statutory demand and is unable to comply with the demand;*

*(b) is unable to pay its debts;*

*(c) has agreed to make a settlement with its creditors or entered into administration".*

- 10 The Petitioners served a statutory demand upon the Respondent. The demand was dated 18th February 2023 and bears two stamps of the Respondent as proof of receipt dated 19th and 21st February 2023. The same is marked as annexture "C2". I shall consider 21st February 2023 as the date when the demand was received by the Respondent who was then required to comply with the Demand - not later than the 21 15 st March 2023. The Petitioners had thirty working days from 21st March 2023 within which to file the Application. The last day of filing the application was 8th May 2023 given that between 21st March and 8th May 2023 there were public holidays such Women's Day, Good Friday, Easter Monday and Eid. According to the ECCMIS Court record, this petition was filed by Petitioners - on the 8 20 th May 2023 at 10:08am. The Application was therefore filed within time as required by section 2(2) of the Insolvency Act.

The Halsbury's Laws of England 5th Edition Volume 16 para 392 at page 335 states the grounds for winding up by court, among which include; the company's inability to pay its debts. At pages 338 and 339 paragraph 394, it was stated that 25 a company, not being an unregistered company, is deemed unable to pay its debts:

> *"if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding £ 750 then due, has served on the company, by*

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- 5 *leaving the same at its registered office, a written demand in the prescribed form ('the statutory demand') requiring the company to pay the sum so due, and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor".* - 10 In the case of *Cornhill Insurance v. Improvement Services [1986] 1 W. L. R 117,* Harman J. relied on the observation made by Sir George Jessel M. R in *In re Globe New Patent Iron and Steel Co. (1875) L. R. 20 Eq.337, 338, where he ruled that the company could be wound up whenever it was proved to the satisfaction of the court that the company was unable to pay its debts.* - 15 This far court is satisfied that the Respondent was served with a Statutory Demand, that the Demand was not complied with within twenty working days and that within thirty working days the Petitioners filed this application. The last stage of the process is laid out in Regulation 89 of the Insolvency Regulations S. I No. 36 of 2013 as amended by the Insolvency (Amendment) Regulations 2023, - 20 S. I No. 76 of 2023). It states that:

*"A company or petitioning creditor shall within seven working days after filing the petition give public notice of the petition in Form 4 in Schedule 1".*

I have perused the court records and found no proof that the public was given notice of the Petition within seven working days from filing the Petition. This is an 25 important step of the process that was omitted by the Petitioners and it is important for the following reasons:

a) It is a legal requirement under Regulation 89 of the Insolvency Regulations SI No. 36 of 2013 as amended by the Insolvency (Amendment) Regulations 2023,

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- 5 S. I No. 76 of 2023). This provision is couched in mandatory terms. It does not make it an option or a discretion to be exercised by the petitioner(s); - b) It is important to notify stakeholders. The latter includes creditors who once notified shall be able to submit their claims. Customers and suppliers is another category of stakeholders that must be alerted. These are parties with 10 ongoing contracts with the company or have some other form of interest in the company. The last category is that of the shareholders. These are informed about the dissolution of the company; - c) Notifying the public is important for purposes of transparency and accountability. Once the public is aware, this would prevent secret winding up - 15 of the company. A public notice would also reduce the risk of fraudulent transactions; and lastly - d) A public notice is important for practical reasons such as enabling creditors to submit their claims within a specified time, it facilitates the sale or disposal of the company assets and enables the completion of any outstanding matters.

The implications of failure to comply with this requirement may lead to an $\mathsf{S}$ invalidation of the winding process or delaying it all together.

This Petition is hereby dismissed with each party bearing their own costs. The Petitioners are advised to follow the laid out procedure of winding up a company as established by law.

Dated and signed at Arua this 13^th day of November 2024. $10$

pudagare

Harriet Grace MAGALA

Judge

Delivered online (via ECCMIS) this 19^th day of November 2024. 15