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MAKERERE UNIVERSITY

SCHOOL OF LAW
BANKRUPTCY AND INSOLVENCY LAW COURSE WORK

NAME: OBAL LOUIS ONEN

REG No: 07/U/14235/PS

STUD No: 207010867

YEAR OF STUDY: FOUR SEM: TWO

QUESTION: TO WHAT EXTENT DOES THE INSOLVENCY BILL, 2009 ACHIEVE THE STATED AIMS WHILE
AT THE SAME TIME UNDERSCORING THE ESSENCE OF THE PREVAILING BANKRUPTCY ACT AND
MODIFYING THE BANKRUPTCY LAW IN UGANDA TO ATTAIN CONTEMPORARY WORLD STANDARDS?
The modern law on bankruptcy is based on principle that if a person becomes hopelessly involved in
financial difficulties and is unlikely to meet his financial obligations at any time, some effort should be
made to extricate him from that position1. The beginning of bankruptcy law goes back to Tudor times
but the works The Complete English tradesman by Daniel Defoe is of relevance. Generally in England,
the first piece of bankruptcy legislation was the 1542 Bankruptcy Act, this Act took bankrupts as crooks
and the aim of the Act was to prevent “crafty” debtors escaping the realm. Lord Kenyon 2 reasserted the
old sentiment that, bankruptcy is considered a crime and a bankrupt in the old law is an offender. A
development that took place in 1825 was that the bankruptcy (England) Act of 1825 allowed people to
start proceedings for their own bankruptcy before any creditor could start any proceedings.
The development of the insolvency law as can be seen took a much gradual process, from the time when
bankrupts were seen as criminals through the time when bankrupts were not allowed to bring their own
proceedings to an era where bankrupts are seen as an individual or company that requires legal
protection.
For the case of Uganda the insolvency law is an import from English law 3. This is evidenced in S.1 of
the 1914 Bankruptcy Act of the UK with S.2 of the Bankruptcy Act of Uganda where both statutes
provide for Acts of Bankruptcy save that for Uganda, Uganda is replaced whenever England appears.
This shows that the all concept of insolvency is an alien phenomenon in Uganda; it also explains why
very few changes if at all have been made to the old laws with respect to bankruptcy. However, with the
current rapid level of economic development, there has been urgent need for insolvency law in Uganda
to be amended hence, the 2009 Insolvency Bill.

The Insolvency Bill, 2009 (herein referred to as the 2009 Bill for the purposes of this discussion) has
several aims and objectives which are targeted to remedy the inadequacies in the Principle Act - the
Bankruptcy Act of Uganda Cap 67. These aims and objectives include butt not limited to; (a)
amalgamating the different insolvency laws into one piece of legislation, (b) remedying the inadequacies
under S.2 of the Principle Act on acts of bankruptcy, (c) providing for voluntary arrangements between
the debtor and the creditor(s), (d) providing for insider dealings, (d) providing for insolvency laws that
meet global standards and, (f) too remedy the figures provided under S.5 of the principle Act.
The Bill in its long title is headed, “An Act to provide for receivership, administration, liquidation,
arrangements, bankruptcy, the regulation of insolvency practitioners and cross border insolvency; to
1
Lord Chorley and O.C.Giles, 1979
2
Fowler v Padget
3
The Judicature Act Cap 13

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amend and consolidate the law related to receiverships, administration, liquidation, arrangement and
bankruptcy; and to provide for other related matters.
The Bill therefore seeks to achieve its aims while underscoring the prevailing Bankruptcy Act and
modifying the bankruptcy law in Uganda in the following ways.

Having had the bankruptcy law from England and importing the same with minimal or no changes at all,
it means the insolvency law is scattered in different Acts. This can be seen where the Bankruptcy Act
Cap 67 only provides for insolvency laws for individuals, the companies Act in Part IV provides for
insolvency law for companies for example S.212 provides for winding up of companies; other laws of
insolvencies are found in the Deeds of arrangement Acts of 1931 Cap75, which for instance, under S.1
defines creditors to include all creditors who may assent to or take the benefit of a deed of arrangement.
With all these statutes providing for bankruptcy law, one wonders which of them is supreme over the
other for instance, the Deed of arrangement Act defines who a creditor is yet the bankruptcy Act and the
Companies Act do not. This makes it relevant for the 2009 Bill to come into play because it
amalgamates all this laws into one statute4 there by making it easy for reference, time management and
also avoids would be conflicts amidst the statutes.

Further, the 2009 Bill in clause 3 deals away with Acts of Bankruptcy spelt out in S.2 of the Bankruptcy
Act. This is of relevance because the acts appear vague in reality. For example S.2 (d) provides for
keeping house, what happens where he gives a gift to his son to open up a business then he keeps house,
should he be declared bankrupt? In Re Taylor, it was stated that a gift by a father to his son to open up a
business is no act of bankruptcy.
The Companies Act in S.223 defines inability to pay money in 3 forms; where a company within 21
days fails to pay a debt which the creditor by assignment or otherwise had left a demand in the
registered office or if proved to satisfaction of court of the company’s inability to pay the debt or where
an order or judgment in returned unsatisfied. All these however do not put in regard other entities like
partnerships. However, by clause 3 of the Bill, a debtor is presumed unable to pay his or her debts or if a
company fails to meet its statutory demands, where an execution issued against a debtor is returned
unsatisfied or where all or substantially all the property of the debtor is in the possession or control of a
receiver or some other person enforcing a charge over that property. This provision makes it more
practicable to establish and prove bankruptcy of the debtor.

4
Part IV of the Insolvency Bill and 4th Schedule

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The Bill of 2009 also provides for voluntary arrangement. In the Bankruptcy Act, voluntary arrangement
amounts to an act of bankruptcy which merits a bankruptcy petition as seen under S.2. under S.17 0f the
Bankruptcy Act, composition in satisfaction of a debt or a scheme of arrangement is allowed but under
S.18, even if the composition or arrangement is allowed, that does not relieve the debtor from debts that
he/she otherwise would not be released of by an order of discharge in bankruptcy unless the creditors
assent to the composition or scheme; under S.4 of the Deeds of Arrangement Act, a deed of arrangement
is void unless assented to by a majority of the creditors even if it is for the benefit of them generally
within or before 21 days after its registration. The Companies Act on the other hand is very silent about
composition in satisfaction of a debt or scheme of arrangement concerning its affairs. These Acts show
that where a debtor enters an arrangement or composition that is an act of Bankruptcy. This in a way
dwindle business relations as it takes away the life it would otherwise survive on. These Acts almost call
for insolvency as soon a debtor seeks composition or scheme of arrangement in regard to satisfaction of
a debt or its affairs respectively. The Bill under Clause 125 allows for an arrangement order and by
Clause 126, a notice of arrangement order has to be given to all creditors including the public. The effect
of this arrangement under Clause 127 of the Bill is that it binds the individuals in respect of whom the
arrangement is made actually Sir W.M James LJ5held that creditor could not reverse an obligation to
himself in priority of others if a company is to become insolvent; the supervisor of the arrangement and
all individual’s creditors for claim arising on or before the day specified in voluntary arrangement.
Further, by Clause 127 (2), no application for an order of bankruptcy should be made, no appointing a
receiver, or commencing, or continuing, with an application to appoint a receiver, and unless with leave
of court, no step is to be taken to enforce any charge, or commence, or continue, or levy distress against
the individual or his or her property. Lord Cross of Chelsea 6stated that were an arrangement has been
entered in, it would be against public policy to opt out of it for the sake of only a creditor as this would
reduce on what other creditors are to get.

The Principle Act does not provide for insider dealings, however, under Clause 18 of the 2009 Bill,
insider dealings is provided for. It states that a transaction entered into by a company or individual
relating to any asset of the insolvent is voidable on the application of the liquidator, receiver, member or
contributory, trustee or creditor, if the transaction involves spouse, siblings, children of the insolvent,
5
Re Jeavons Ex parte Mackay (1873) LR 8 Ch App 643
6
British eagle International Air Lines Ltd v National Air France [1975] 1 WLR 758

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employees, officers, professionals or other service providers of the insolvent, business associates,
partners, share holder, directors or other similar persons.
The rationale for the clause is in the fact that it is aimed to fight against transactions aimed at aiding the
insolvent to put his or her or their assets out of reach of the creditor. There however seems to be some
semblance with S.2 (1) (b) of the Principal Act, but here, such transactions which are within 6 months of
the date of the presentation of the bankruptcy petition are void. What need to be proved here is the fact
that there was intent of defeating the creditors? This shows that where there is no intent that provision
does not merit. In instances where a father gives a gift to the son to start up a business that does not
amount to a bankruptcy act. The court however must prove satisfactorily that there was no intent of
defeating creditors in the circumstances.

According to S.5 (1) (a), the aggregate amount upon which the petition may lie is 1,000 shillings; and
under S.223 (a), where if within 21 days after the creditor has demanded a pay of his debt due in excess
of 1,000 shillings and the company has failed that amount to an act of bankruptcy.
The fact that the Bankruptcy Act like were acts from the British, and no serious initiative has been taken
to amend them, this makes them a bit inadequate in a far as insolvency is concerned. Hence a need of an
amendment. This explains why the second schedule of the bill prescribes for the currency point for the
purposes of Clause 4 (on statutory demand) which provides for fifty currency points in case of an
individual, a one hundred currency point in the case of the company.
This is relevance because by the time these Acts were enacted, 1,000 shillings had high value but
because of the ever increasing inflation, 1,000 shillings has lost value. Therefore, the provisions of the
currency point in Schedules 1 & 2 are of great relevance because the currency point established under
Schedule 1 lives up to the inflationary level in Uganda.

The 2009 Bill also provides for cross border insolvency. This is clearly stated in the Fourth Schedule.
The Principle Act however does not have it. This provision helps to cement international relations
because first of all, it will fight against foreign investors who may be dubious and may want to day-rob
Ugandans of there money after which they would run away in the name of Uganda having no laws and
therefore without proper forum thereby preferring their own. This is forum shopping which is not
allowed in Conflict of Laws7as defendants always escape liability. This also allows for one to apply for
an order of Court to claim for security of costs where it appears that a plaintiff may succeed. In the case

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Smith in Conflict of Laws

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of Sir Lindsay Panknison, it was held inter alia that where it appears likely that the plaintiff is likely to
succeed against the defendant, he/she may apply for an order of court for security of cost in any suit for
insolvency.

The 2009 Bill also protects a debtor from creditors who may sweep him/her off everything. Under S.31
(2), a bankrupt is not to be deprived of tools, books and other items of equipment which are necessary
for his personal use or his/her employment, business or vocation; clothing, beddings and the provisions
which are necessary for his basic needs and his/her family. It also protects matrimonial home and any
other property that the court may protect. Land on which the family derives livelihood 8 is one such
property that should be guarded jealously by the court or else, the bankrupt’s family members may end
up suffering a fate to which they are not to blame. This, the current insolvency law does not protect.

In conclusion, to a larger extent the insolvency Bill has tried to remedy a lot of loopholes in the
insolvency laws of Uganda. It has brought with it very many new changes that I believe are of great
importance. However, the Bill has not addressed some issues amicably for instance the Bill does not
address the issue of cash flow insolvency. Cash flow insolvency was interpreted not only to consider
whether current debts are unable to be paid as they fall due but also consider whether future debts will
be paid9. However, much as the insolvency Bill does not address all insolvency laws in Uganda, credit
has to be given where it is due.

8
Mrs Okumu Wengi
9
Re Cheyne finance p/l [2007] ALLER 25

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REFERENCE

Lord Chorley and O.C Giles, SLATER’S MERCANTILE LAW, 1979

Smith, CONFLICT OF LAWS

The Bankruptcy Act Cap 67, of the laws of Uganda

The Insolvency Bill of 2009, of Uganda

The Deeds of arrangement Act, 1931 cap 75

The 1825 Bankruptcy Act of England

The 1914 Bankruptcy Act of England

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