Achom and 5 Others v Mothers Majeri Limited (Petition Cause 37092 of 2024) [2024] UGRSB 19 (21 October 2024)


# IN THE MATTER OF THE COMPANIES ACT CAP 106 IN THE MATTER OF A PETITION AGAINST OPPRESSION PETITION CAUSE NO. 37092 OF 2024 IN THE MATTER OF MOTHER MAJERI LIMITED 1. ACHOM ASHLEY METHIA 2. OPIO GEORGE 3. SHANTAL KAREN OPAABA 4. APIO KAYLA

- 5. ADONG KENDRA MAKAYLA - 6. AKELLO KEYSHER MUTONYI (Suing through their legal guardian Mutonyi <table>

Brenda Kashamba:::::::::::::::::::::::::::::::::::

## **VERSUS**

MOTHER MAJERI LIMITED::::::::::::::::::::::::::::::::::::

## **RULING**

BEFORE: MULIISA SOLOMON – ASSISTANT REGISTRAR OF COMPANIES

- 1. This is a petition for minority oppression, filed on $30^{th}$ May 2024, by the 1<sup>st</sup> to $6^{th}$ Petitioners, all of whom are minors, suing through their legal guardian, Mutonyi Brenda Kashamba. The petitioners contend that they are shareholders in the respondent company—a company limited by shares—with each holding 30 $\frac{1}{2}$ ordinary shares. The respondent company was incorporated on 13<sup>th</sup> September 2001. - 2. The petitioners contend that the affairs of the company are conducted in a manner oppressive to their rights as members, that as shareholders they have never been

paid dividends, that their request to access accounts of the company and to have a general meeting were denied by the respondent's management, that the respondent has failed to cause company meetings and that the petitioners are never given any company notices for general meetings. The petitioner seeks the following prayers;

- (a) A declaration that the affairs of the company are run in a manner oppressive to the petitioners. - (b) An order to audit the books of account of the Respondent from 2020 to date. - (c) A direction to convene a general meeting; - (d) A direction to pay the petitioners their due dividends. - 3. In their answer to the petition filed 31<sup>st</sup> July, 2024 and supported by an affidavit of Ms. Acham Rhoda Ochom, one of the surviving members and director, the Respondent denies the allegations of prejudicial conduct. The Respondent raises preliminary points of law to the effect that Ms. Mutonyi Brenda Kashamba has no locus to bring this petition on behalf of the petitioners, that the petition is incurably defective. The Respondent also contends that the petition is incompetent and bad in law and prays that the same be struck off. With regard the petitioners' claims, the Respondent avers that company was established by George Opio and Alupo Christine both deceased, that the surviving shareholders and directors are Acham Rhoda, Alupo Brenda, Akrut Irene and Akello Faith in accordance with the provisions of article 68 (b) of the Memorandum and Articles of Association. That the founding members admitted the petitioners as shareholders in 2017 on the basis that they were biological children of the late George Opio, allotting each one of them 30 ordinary shares. - 4. The Respondent avers that the petitioners have never paid up for these shares. That the two founding members, out of the 6, to wit George Opio and Alupo


Christine died intestate on 12<sup>th</sup> June 2021 and February 2021 respectively. That the administrators of the two deceased shareholders are not yet appointed.

- 5. The Respondents further aver that under article 49 of the memorandum and articles of association of the company, meetings of the company cannot legally take place unless there is present in person or by proxy, a shareholder holing preferential shares. That the two shareholders holding such shares are the two deceased founding members, whose legal representatives have not been appointed yet. That as such, it is legally impossible to convene meetings for purposes of declaring dividends in terms of article 103 of the Company's memorandum and articles, and that it is not possible to convene a General Meeting and consider any business in absence of the legal representatives of the two deceased shareholders. That the Respondent is awaiting the appointment of the legal representatives of the two deceased shareholders, who held a super majority of the shares in the Respondent. That it is because of this, that the company has been unable to conduct general meetings. - 6. In rejoinder, the petitioners dispute the claim that the 30 shares allotted to each of them was not paid and contend that the same was paid by the petitioners' father, the late George Opio at the date of incorporation. With regard to the preliminary objections, the petitioners contend the guardianship order granted by the High Court to Ms. Mutonyi entitles her as their appointed guardian to protect their interests and as such they have a right to file this petition through their guardian. They further aver that the death of the two founding shareholders does not prevent the Respondent from holding meetings. - 7. When this matter came up for hearing on $13<sup>th</sup>$ August 2024, the Petitioners were represented by Mujuni Januario and Mwine Tumwebaze whereas the Respondent by Ambrose Tebyasa, the following issues were framed for determination.

- (a) Whether the affairs of the company are being conducted in a manner that is oppressive *and prejudicial to the rights of the petitioners* - (b) Whether the petitioners are entitled to the access accounts of the company and to *inspect the books of accounts* - (c) *Whether the petitioners are entitled to any remedies under the circumstances.* - 8. The parties were directed to file written submissions which were duly filed.

#### **RESOLUTIONS OF ISSUES**

- 9. Before I venture into the substantive issues, let me first address the preliminary points of law raised by the Respondent. The main one, which I will focus on is the lack of locus to fie this petition by Ms. Mutonyi Brenda Kashamba, the legal guardian of the petitioners, who is suing on their behalf. The respondent contends that for a person to sue on behalf of minors, they must be a next friend within the meaning Order 32 rule 1 (1) of the Civil Procedure Rules, and that to qualify as so, the petitioner must have complied with Order 32 Rule 1 (2) of the CPR which provides that "before the name of any person shall be used in any action as next friend of any infant where the suit is instituted by an advocate, that person shall sign a written authority to the advocate for that purpose, and the authority shall be presented together with the plaint and shall be filed on record". - 10. I do not agree with the above preliminary objection. First, the cited provisions of the Civil Procedure Rules govern proceedings before Courts of judicature and not matters before the Registrar of Companies. Proceedings before the Registrar of Companies are governed by the Companies Act and the regulations made there under. With regard to petitions for minority oppression, such as this, the applicable provision is section 243 of the Companies Act, Cap 106 (as amended). "It provides (1) A member of a company who complains that the affairs of the company are being conducted in a manner oppressive to a part of the members

including himself or herself or in a case falling within section 174(5), may make a complaint to the Registrar by petition for an order under this section." The petitioners are members of the company, however, owing to their lack of capacity due to being minors, they cannot institute these proceedings on their own, the reason they have to rely on their guardian. I have perused the guardianship order issued by the High Court in Family Cause No. 42 of 2022, dated 20<sup>th</sup> July 2023. While it does not specifically give powers to the guardian file this petition, in paragraph 4 of that Order, the High Court permits the said Ms Mutonyi to receive and apply the dividends owning to the Petitioners in the Respondent. While this would not ordinarily entitle her to exercise the rights of members as I expound in this ruling, for purposes of completeness I will exercise my discretion to entertain this petition to examine the nature of claims. The preliminary objection is therefore overruled. The other objections seem to be based on this and I see no reason to venture into them.

#### Resolution of issues on the merits.

11. This petition is an action for minority oppression. The petitioners bring this petition under section 247 of the companies Act. This provision however has since changed to section 243 of the Companies Act Cap 106. It is not disputed that the 6 petitioners each holding 30 shares and collectively holding 180 shares, are a minority group in a company having a total shares of 2135 shares. The Petitioner's main claim is that the Respondent has denied the petitioners' legal guardian access to the company books of accounts, has not held company meetings, has denied a request to hold a company meeting and has not paid the Respondent their dividends. In its defense, the Respondent first avers that the Petitioners were allotted the shares in 2017 and have to date not paid for the said shares. In rejoinder, the Petitioners aver that these shares were paid at incorporation by their

late father, however they do not dispute the assertion that the shares were allotted to them in 2017 on account of them being children of the late George Opio.

- 12. The Respondents hence avers that as unpaid up shareholders, the petitioners are not entitled to participate in dividends and other affairs of the company. Further, the Respondents aver that the meetings of the company cannot take place due to the death of the late George Opio, who is a preferential shareholder and that article 49 of the company articles, forbids holding of meetings in absence of a preferential shareholder. They argue that the delay in appointing the legal representative of the late George is what has prevented the holding of meetings. - 13. There two critical issues to consider. First, are the petitioners paid up shareholders and if so, are they entitled to participate in the affairs of the company? Second, if they are, does article 49 of the Company's articles prevent the holding of shareholders meetings to conduct the business of the company in absence of the late George Opio or his legal representative? - 14. In resolving the first question, it is important to note that petitioners are minors. The question is whether each of their 30 shares are paid up. The Respondent, in its answer to the petition avers that these shares were allotted in 2017 and have never been paid. The Petitioners in their rejoinder, do not dispute that the shares were allotted in 2017 but contend that the shares were already paid by their late father at incorporation. I find this a contradiction. First, the company was incorporated in 2001 with 6 founding members each having their shares. The Petitioners' shares were allotted in 2017, a fact which has been averred by the Respondent and not denied by the Petitioners. I am unable to see how, shares allotted in 2017 can be paid by the Petitioner's father in 2001!. This assertion seems to be a confusion of the late George Opio's shares which are 1785, and which can only be dealt with upon obtaining letter of administration. These shares are clearly different from the petitioners' shares, which are indicated on the same memorandum and articles of

association amended in 2017. They should not be confused as they will be transmitted to the legal representative upon submission of letters of administration.

- 15. Regardless of the wrongful assertion by the Petitioners' guardian that the shares were paid at incorporation in 2001, I have perused the record and there is evidence of a return of allotment supported by a resolution, both filed on 10<sup>th</sup> August 2017, indicating the Petitioners' shares and the amount paid for each other petitioner's shares. Therefore, it is not true that the shares are not paid as alleged by the Respondent. I therefore find that the shares allotted to the petitioners were fully paid. - 16. Despite the finding that the shares were fully paid, the Companies Act is silent on the rights of minors to participate in the affairs of the company, whether by themselves or by a representative. However, where a legal guardian is appointed, some rights of a minor such as receiving dividends may be exercised by a legal guardian. This is premised on the recognition that minors can own property and since shares are deemed property under section 81 of the Companies Act, Court recognizes and safeguards the rights of minor shareholders to receive remuneration from their property by appointing a guardian. - 17. Indeed, the Court Order appointing Ms Apio Mutonyi Kashamba, the Legal Guardian is a recognition of the rights of minors to their property in the shares allotted to them. However, that order restricts her to receiving and applying dividends and not exercising all rights of shareholders. It states under para 4; "Opio Mutonyi Kashamba is permitted to receive and apply the dividends for shares in Mother Majeri and Maama Junior School Ltd for and on behalf of, and in the sole interests of the children but shall not have power to sell...." (emphasis *mine*). This view is supported by other decisions of the High Court relating to rights of minors to their property. For example, in Miscellaneous Civil Application No. 0008 Of 2016 in the Matter Of An Application By Meshak Adriko (The Biological Father Of The Minor) And In The Matter Of Adriko Reuben (A Minor), the High Court noted as follows; "In matters of this nature, where the legal property rights of a child are involved, yet by virtue of his status as a legal incompetent, the child does not have the capacity to safeguard those rights on his own, courts are expected to exercise a parens patriae authority. A judge is required to make an independent assessment of these interests, to prioritize them above the competing interests of adult claimant, and to make orders most likely to safeguard and promote these interests. Accordingly, a child in whose name property is registered has a cognizable proprietary right that need not be claimed by way of right of audience before the court. The Judge acting as parens patriae is responsible for protecting the interests of children in matters that *come before him or her." (emphasis mine)*

- 18. The above decision confirms that, because of the legal incapacity of the minors, Court has the authority to make those decisions on their behalf in accordance with the welfare principle embedded in section 3 of the Children Act, Cap 59 (as amended). The extent of the authority of court is clearly stated in its orders and one is required to read the orders of court to determine the scope of authority granted. The authority granted to Ms. Mutonyi with respect to shares of the petitioners is only limited to receiving and dealing with dividends. - 19. While the Companies Act does not explicitly prohibit minors from being shareholders, the capacity of a minor to act in such a role is influenced by general legal principles regarding minors' contractual capacity and ability to manage their own affairs. A minor (a person under the age of 18 under the Ugandan Constitution) generally has limited contractual capacity (See section 11 $(1)$ (a) of the Contracts Act Cap 284. Similarly, under common law, a minor cannot independently enter into binding contracts, save for contracts of necessities (see


Nash v. Inman [1908] 2 KB 1). This means that while a minor can technically hold shares or interests in a company, they may not be able to exercise control or make decisions regarding those shares without the intervention of a guardian or a courtappointed representative. This appointment must be either general, dealing with all proprietary interests of the minor (s), or specific granting the guardian particular powers. In the circumstances of this case, the guardian was only appointed to receive dividends.

- 20. With regard to calling and attendance of meetings, the companies Act provides mechanisms in which a person may act for another for instance in meetings, it provides for appointment of proxies. Minors cannot appoint proxies as they lack capacity, nor can they authorise any other person to act on their behalf. The authority of Ms. Mutonyi as per the Court order granting her guardianship is limited and does not grant her the authority of a full shareholder to demand to inspect company books—moreover such a right under section 150 (3) of the Companies is a preserve of directors—or to demand the calling of a meeting within the meaning of section 135 of the Companies Act. Does this then mean that the Petitioners' rights cannot be safeguarded in the company? The answer is no. As and when the petitioner's attain majority age, they can fully exercise their rights in the company or in the alternative, the legal guardian can seek extended authority from the High Court which has unlimited jurisdiction, including, if court deems it fit, the right to inspect books of account or even to attend meetings. - 21. While the Petitioners' guardian's authority does not extend to requesting for a general meeting on behalf of the petitioners, I note that under article 41 of the Companies Articles, the company has a duty to conduct general meetings and to conduct matters that are usually conducted at general meetings in accordance with its articles of association. I do not agree with the Respondent's Counsel's submission that such a meeting cannot take place due to the death of the two

founder shareholders including the petitioner's father. The Respondent bases this argument on article 49 which prohibits the holding of general meetings unless there is present, a founder member either by proxy or in person who holds preferential shares. This provision only applies when there are founding members holding preferential shares. The Respondent has not submitted any evidence that either of the deceased shareholders held preferential shares. Even then, the return of allotment filed on 10<sup>th</sup> August 2017 does not show any of the founder members holding preferential shareholders. All the shares indicated therein are ordinary shares. Be that as it may, the founding members were six and only two have since died. Therefore, there is no reason why ordinary or extra-ordinary meetings should not be held with the participation of the surviving shareholders. While the Respondent's Counsel submits, that because the two deceased shareholders held the majority shares and their legal representatives have not been appointed yet, I do not find this an impediment to holding general meetings as the quorum of the company is not set in terms of the number of shares held. Quorum is set under article 49, which requires a quorum of two members, one of whom should be a founder member holding preferential shares. Clearly, the number required is two members, although it is a condition that the founder member duly present among the surviving shareholders, should be a holder of preferential shares. However, I note that the provision appears to be poor draftsmanship in as far it requires a founder eligible to form quorum to be a holder of preferential shares yet the company has not indicated anywhere which founder shareholders have preferential shares. Be that as it maybe, I should hasten to add here, that the petitioners' guardian, as per the current guardianship orders granted to her, has no right to attend such meetings nor does she have a right to be given notice of meetings. This is because the authority of court granted to her does not extend that far. That takes me to the next issue in this petition.


- 22. Are the petitioners entitled to payment of dividends? The answer to this is yes, but only if dividends have been declared in accordance with the company's memorandum and articles of association. The payment of dividends is governed by articles 103 to 111 of the articles of the company. First, article 103 of company's articles provide that "Company in a general meeting may declare dividends; but *dividend shall not exceed the amount recommended by Directors"*. The article uses the words "may" as "shall", meaning it is not mandatory for the company to pay dividends. Secondly, where the company decides to pay dividends, the provision limits payment to the amount recommended by the Directors. This provision is grounded in the principles of company governance where payment of dividends is only limited to the profits available as maybe determined by the Directors. Article 105 of the Company's articles affirm this principle when it states; "No *dividend shall be paid otherwise than out of profits"*. This is in line with section 67 (2) of the Companies Act which strictly limits payment of shares from profits. It should be noted that the right to receive dividends is not automatic as it arises only when the company has made profits. Even then, the Directors can recommend that profits be re-invested in the company for its further growth. - 23. It is therefore not appropriate that the Registrar of companies interferes with the affairs of the company to direct a company to distribute dividends or pay any entitled party dividents. Doing so would be an unjustified intrusion into internal affairs of the company. The decision to pay dividends or not is a preserve of the organs of the company—which include the board of directors and the current shareholders in accordance with the articles of association of the company, and out of existing profits. Where however, such dividends are declared in accordance with the articles of the association and the company refuses to pay an entitled party, such party may bring a claim including a claim for minority oppression or


prejudicial conduct. Until such a time, the Registrar of Companies cannot direct payment of dividends where none have been declared.

## Remedies.

- 24. In light of the above, I find no basis to grant prayers sought by the Petitioners. While the Petitioners Counsel cites section 138 (4), which is currently section 134 (4) in the Companies Act Cap 106, regarding the powers of the Registrar of Companies to direct the calling of a meeting as a basis for their prayer to direct the Respondent to call a general meeting, this provision applies where members of a private company having the right to call a meeting have requested the calling of a general meeting and the company has defaulted to call the meeting. I have already determined that neither the petitioners who are minors without legal capacity, nor their guardian whose authority is limited, has the legal right to request a meeting as normal shareholders would. To that end, the Registrar of Companies is unable to exercise the powers under section 134 (4) of the Companies Act. However, as advised in this ruling, article 49 of the company's articles do not restrict the Respondent from convening general meetings. The Respondent is therefore advised to hold annual general meetings in accordance with its articles of association. With regard to the prayer to direct the auditing of the Respondent's accounts, I find no reason to cause an investigation of such a nature as an application for investigation can only be made by adult members with full rights, and not a legal guardian whose authority is limited to receiving dividends. The prayer is declined. - 25. The petition is hereby dismissed with no order as to costs.

26. I so Order.

Given under my hand this $\mathfrak{S}$ day of $\begin{array}{|c|c|c|}\hline & 2024. \\ \hline \end{array}$ Muliisa Solomon **Assistant Registrar of Companies**

$\mathbf{J}$

$\mathcal{L}_{\mathcal{M}}$

*Delivered by E-mail:*

| Counsel for the Petitioners | mwine@abbasadvocates.co.ug | |-----------------------------|----------------------------| | | info@abbasadvocates.co.ug | | Counsel for the Respondent | ambrobyasa@yahoo.com |