Fresh Cuts (U) Limited v Aya Investments (U) Limited (Bankruptcy Cause 3 of 2021) [2022] UGCommC 177 (7 November 2022)

Full Case Text

## THE IIEPI,JI}LIC OF I,](;ANI)A

# IN THE HIGH COURT OF UGANDA AT KAMPALA IcoMMERCIAL DIVISIONI

## IN THE MATTER oF THE INSoLVENCY ACT NO. I{ OF 20I I

## ANI)

# IN TT{E MATTER OF INSOLVENCY REGI. ILATIONS BANKRUPTCY CAUSE NO. 03 OF 2O2I

## FREStI CIITS (tl) LIMITIII)::::::::::::::::::::::::l'ETITIONER (CREI)ITOR) vEllst-ls

## AYA INVESTMENTS (U) LIMITED: : : : : : ::: :::::: RESPONDENT(DEIITOR)

## BEFORE: HON. LADY,ltrsTlCE ANNA B. Nll-r(;l'-NYl RI]VIEWEI). IUDGMENT

The Applicant (Petitioner) made this application by way of a letter under Section 99 of the Civil Procedure Act Cap 7l tbr rev ierv/correction of the Court's judgment in this case delivered on the 25tr' day of October 2022.

The ground for the application is that the dates quoted on page 5 of the decision are of Bankruptcy Cause No. I of 2021 which was withdrawn whereas the current petition before the Court is Bankruptcy Petition No.03 of 2021. Counsel submitted that the error is one that can be corrected under Section 99 of the Civil Procedure Act. He added that in their submissions, the Notice was served on the 9th of April 2021,the Creditor's Petition was served on 2"d June 202 l, and finally that the last day of compliance was 6'h May 202 L

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lhave perused the application, looked at the pleadings on the tlle and found that there are two (2) similar copies of the Creditor's Petition both received on the same date 2''d June 2021 on the tlle. Both bear the same number which is Bankruptcy Cause No. 03 of 2021 although they are different. The first 8 paragraphs are exactly the same however the difference is from paragraph 9. It is upon this conf'usion that this Honourable Court relied on one of the Petitions which had the same dates as that in Bankruptcy Petition No. 0l ol 202 I which had been withdrawn.

However, upon looking at the Petitioner's Written Submissions, I find that the dates stated therein align with the dates on the other copy of the Petition and on the Aflldavit of service of the Statutory Demand sworn on the l5'r' day of August 2021. Therefore, the error led this Honourable Court to a wrong decision and therefore I find that this is a fit and proper case where Section 99 of the Civil Procedure Rules applies.

## Scdion 99 o./ the Civil Proc'edurc /c'l pror. iclcs:

"Clerical or mathematical nti.stakes in.juclgentents. dacrees ot' orders. or error.\ orsing in them from any acc'idental slip or omission may at any time he correcled bt'the cottrt either of its otun motion or on the upplication o/ an1'o/'the 1)arlies."

In the case of Uganda Development Bonk Ltd V Oil Seeds (U) Ltd Miscellaneous Application No.l 5 uf I 997. the Supreme Court held that errors in Courl Orders or decrees can be corrected to give effect to the Court's rnanif'est intention. In the prerrises. it is in the interests of justice that the errors in this judgement be corrected to give effect to the true intention of the Court, theretbre, I will now proceed to review the Judgment and rnake the necessarl'corrections on the dates.

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Fresh Cuts Uganda Limited (hereinafter ref-erred to as the Petitioner/Creditor) filed this Petition under Section 20 (2) ofthe Insolvency Act No. l4 of201 I seeking lor a Bankruptcy Order to be made against Aya Investments Uganda Limited (hereinafter ret'erred to as the Respondent/Debtor).

#### Grounds of the application

The Petition was supported by the Debtor's aftldavit verilying it sworn by Tindyebwa Amos, the Managing Director of the Creditor. It raises the following grounds:

That the Creditor supplied the Debtor with an assortment of meat on credit worth UCX 44,923,565/ between 2l'' October and 29'r' Decernber 20 17. That the Debtor's agents acknowledged receipt of delivered goods, but have failed to pay despite undertaking to pay on 6'r' April 2018 and several rerninders.

That the Creditor then filed Civil Suit No. 589 of'1018 against the Debtor at the Chief Magistrates Coutt in Mengo; and that judgernent was entered against the Respondent on the l2tr' day of Septernber 2018 for the clairned amount of UGX 44,923,565/, interest at25%o frorn the tirne of default until payrnent in tull, and the costs were taxed and allowed at UGX 10,065,000/. That subsequently the issued warrant of attachment and sale f-ailed due to the Debtor's tiustration. That the Statutory Demand was served on the Respondent on the 6tr'of Novernber 2020; and the 20 working days within which the Respondent should pay have expired. That the Respondent has not cornplied with it therelbre it is uporr that prernise that a Bankruptcy Order should be issues against the Respondent.

Although the Petition later proceeded exparte. the Responderrt tlled their answer to the ['}etition which was supported by an affidavit in reply deponed to by Abdul l.atif' Harnid; wherein he denied tl.re clain.rs in the Petition and intimated that they

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would raise a preliminary objection for the Petition to be disrnissed because it sought to execute the orders of the Chief Magistrates Court in Mengo in Civil Suit No. 589 of20l8. That the Respondent only became aware ofthisjudgement upon being served with the Statutory Demand; upon which they filed an application in Mengo seeking to stay execution and the Statutory Demand. That the said Applications were pending hearing before the Chief Magistrates Court in Mengo on 2l'r October 2021. He added that this Petition is pegged on the Statutory Dernand of l6'r' November 2021 which was declared illegal and invalid in Bankruptcy Cause No. I of 202 I .

He concluded by disputing the jurisdiction of this Honourable Court and denied the existence of any ground warranting the issue of an order winding up the Respondent. That the Petitioner has never made any attempts to execute against the Respondent as alleged; and that a mere affant of execution cannot sufflce to prove a t'ailed execution. No evidence id produced fiom the bailif fs.

The Petition canle up fbr rnention on 5rl' Septerrber 2022 and it was ad.iourned to 6'r' Septernber 2022 for hearing. Neither the Respondent representative nor their Advocate appeared on 6rr' Septernber 2022, and theretbre this Honourable Court ordered that the matter proceeds exparte as it was adjourned in the presence of the Respondent's Advocate. The Petitioner tlled written subrlissions which have been considered in th is Judgment.

## t{Et,R ESE\l',,\l'lo\

The Petitioner was represented by M/s Hagurna Law Charrbers & Advocates while the Respondent was represented by M/s Akampurnuza & Co. Advocates.

## ,tUlx;N,iliN1'

The Issues tbr resolution betbre this Couft are

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l. Whether the Respondcnt is indebtctl to the Pctitioncr.

2. Whether the Respondent committed an act of bankruptcy.

#### lssuc I

## Whcthcr thc llcspondcnt is indebterl to thc l)ctitioncr

Counsel submitted that the Respondent is indeed indebted to the Petitioner as shown by NNHr the contract of supply of assofted meat attached to the Petition and NNH: the acknowledgrnent and receipt issued by the Respondent tbr the products. He also relied on NNHr an undertaking to pay by the Respondent. That upon f'ailure to pay, the Petitioner flled Civil Suit No. 589 of 20 l7 against the Respondent, and the attldavit ofservice ofthe process servel dated 5'r'July l0l8 is evidence that the Respondent was duly served. Subsequently, .iudgement was entered in favour of the Petitioner and a copy of the decree was attached as annexure NNHr,. He concluded that all that evidences the debt of UGX 44,923,5651 plus costs of the suit which was UGX 10,065,000/. That the Petitioner has attempted to execute but failed, and the Respondent has still failed to pay.

Having looked at the submissions and in the absence of evidence to the contrary, I flnd that the Petitioner has proved that the Respondent is indeed indebted. NNHo, a decree tiom Chief Magistrates Court of Mengo is enough proof. There is no evidence that the same was set aside or that execution was stayed. In addition. irrespective of the fact that the rnatter has proceeded expdrte. the Respondent in their answer to the Petition, do not specifically deny knowledge of the debt despite claiming that they only learnt of the judgement when they received the Statutory Dernand.

This Issue is accordingly resolved in the af'firrnative

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#### Issue 2

#### **Whether the Respondent committed an act of bankruptcy**

Under Section 20 (2) of the Insolvency Act No. 14 of 2011, both the creditor and debtor can present a petition for bankruptcy upon the debtor's failure to satisfy the statutory demand. Subsequently, Section 3 $(1)$ $(a)$ to $(c)$ list the circumstances under which a debtor is presumed to be unable to pay the debtor's debts; and these briefly include when the debtor fails to comply with the statutory demand, when execution of a judgment debt is returned unsatisfied in whole or part or when the debtor's property is in the possession or control of a receiver.

Section 3 (2) of the Act gives a restriction of the applicability of failure to comply with a statutory demand as a ground for petitioning for liquidation or a bankruptcy order. It provides:

"*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 creditor, shall not be admissible as evidence of inability to pay debts unless the application is made within 30 working days after the last date for compliance with the demand".

The Petitioner in this case contends that the Respondent is indebted to them to a sum of UGX 68,031,156/ arising from Civil Suit No. 589 of 2018. He added that they issued demand notices demanding for the decretal sum but that the Respondent declined to pay. Attempts to execute the decree were futile as the same remained unsatisfied. Similarly, the warrant of attachment of the Respondent's property issued in EMA 2926 of 2018 was allegedly frustrated by the Respondent.

Counsel lirr the Petitioner suburitted that as a result. NNIIrrr the statulory demarrd o accompanied by the Statutory Declaration veritying the debt dated 6'r'April 202 I were served on the Respondent on the 91r'day of April 202 I requiring thern to pay the debt within 20 working days. Therefore, the 20'r'working day lronr 9'r'April 202I is 6'r' May 2021 .lt follows theretbre, that this Petition was llled on the 2'"r day olJune 202 I which is well within the 30 working days lionr the last date of conrpliance; within which a Petition should bc liled. Counsel added that allldavits of service of Alexander lgiranezaa a process server, were fl led on record showing proofofservice of the Statutory Dernand and notice of the Petition respectivell,

('orrnscl lirrther lcliecl on the case ol' ln lhe nrtllar o/ Pctition.fbr Rcte ivittg Ordcr o.f Thonrus l. Klto Bankruptc.l' Cuuse No. I -l o./ 2002 u,he rc it u as helrl that it' the-Petitioner can prove indebtedness of a decretal sr,rrn which rer.nains unsatisfled due to an act ol bankruptcy, then consequential orders should fbllow. He added that the Respondent's refusal and inability to honoul the Petitioner's debts owecl to the Petitioner is an act of bankruptcy, and he concluded by praying that a Bankruptc)' Order be issued against the Respondent.

Ihave carefully looked at the Petition. subnrissions arrd ar.rthorities advanced by Counsel tbr the Petitioner and below are my tindings

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First and foremost, the Petitioner proved in the first issue that the Respondent is indebted to it by a sum of UGX 68,031,156/ arising from Civil Suit No. 589 of 2018. It follows therefore that there is need to prove an act of bankruptcy before a bankruptcy order is issued against the Respondent.

Section 3 of the Insolvency Act No. 14 of 2011 provides for circumstances under which a debtor is presumed to be unable to pay his debts and among which are that the debtor has failed to comply with the statutory demand; and also that the execution issued against the debtor in respect of a judgement debt has been returned unsatisfied in whole or in part.

As Counsel submitted, it is clear from the Affidavit of Service of Alexander Igiraneza, a court process server, sworn on the 15th day of August 2021 that the Respondent was served with the Statutory Demand on the 9th day of April 2021 and that the same was also subsequently served on the Respondent's Counsel on the 19th day of April 2021. Going by the first date of service, the last day of compliance with the Statutory Demand is 6th May 2021 and there is no evidence to show compliance by the Respondent.

There is also no evidence that the Statutory Demand was set aside by the Respondent under Section 5 of the Insolvency Act and therefore, it can be

conclusively said that the Respondent is unable to pay their debt by virtue of their failure to comply with the Statutory Demand within 20 working days.

Similarly, the Petitioner has proved that the warrant of sale of the Respondent's property issued in EMA No. 2926 of 2018 was returned unsatisfied in whole or frustrated by the Respondent's Directors as Counsel put it. Despite the fact that the matter proceeded exparte, there is no evidence to show that the Respondent stayed execution or that they satisfied the execution issued against them.

Subsequently, I find that the Petitioner has also proved Section 3 (1) (b) of the Insolvency Act, and therefore proved that the Respondent is unable to pay their debts. In addition, the Respondent was duly served with the notice of petition, they even filed their answer to the Petitioner but did not show up for hearing and yet the matter had been adjourned in the presence of the Respondent's Counsel.

The purpose of bankruptcy proceedings was clearly stated in the case of *Mutesi In Re-a debtor Bankruptcy Petition No. 5 of 2011* 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 is to administer the estate of an insolvent to enable him or her pay his or her debts.*"

In conclusion, in the instant case, it is necessary that the estate of the Respondent be administered to assist them pay their creditors. Subsequently, pursuant to Section 20 (2) and Section 3 (1) (a) and (b) of the Insolvency Act, I find that the Petitioner has satisfied all conditions necessary for the grant of a Bankruptcy Order against the Respondent/Debtor.

The Petition is therefore allowed. The Respondent has committed an act of bankruptcy and therefore a receiving order is hereby issued against the estate of the Respondent pursuant to Section 20 (3) of the Insolvency Act No. 14 of 2011.

Dyphrative

HON. LADY JUSTICE ANNA B. MUGENYI DATED...................................