Kagaba Kakyali v Mpanga Tea Growers Factory Limited (HCT-01-CV-MC 6 of 2024) [2024] UGHC 753 (16 August 2024)

### **THE REPUBLIC OF UGANDA**

# **IN THE HIGH COURT OF UGANDA AT FORT PORTAL**

### 3 **HCT – 01 – CV – MC – 0006 OF 2024**

# **IN THE MATTER OF THE COMPANIES ACT NO. 1 OF 2012**

#### **AND**

#### 6 **IN THE MATTER OF MPANGA GROWERS TEA FACTORY LTD**

#### **AND**

# **IN THE MATTER OF AN APPLICATION FOR AN ORDER DEFERRING THE CONVENING OF THE 28** 9 **TH ANNUAL GENERAL MEETING OF MPANGA GROWERS TEA FACTORY LTD FOR THE YEAR ENDED 31ST DECEMBER 2022 UNDER SECTION 138 AND 142 OF THE** 12 **COMPANIES ACT 2012, AND SECTION 33 OF THE JUDIDCATURE ACT**

**OSIIME KAGABA KAKYALI :::::::::::::::::::::::::::::::::::::::::: APPLICANT**

### 15 **VERSUS**

# **MPANGA TEA GROWERS FACTORY LIMITED ::::::::::::: RESPONDENT**

**Corum: HON. JUSTICE VINCENT WAGONA**

**Delivered on: 16th** 18 **/08/2024**

*Summary: Company Law - Duties and responsibilities of directors - Directors of a company occupy a special position in the corporate soul of any entity. Thus they*

21 *have the primary duty to ensure that the company complies with the law and all legal requirements in order to preserve its juristic personality and its assets. This duty comes with the responsibility of rendering true account of the finances, assets*


*and liabilities of the company to the shareholders. The defaults on such responsibility attract sanctions not against the company but the directors.*

*Company Law – Annual General meeting; - An Annual general meeting is an important aspect in the management and operation of any corporate entity. It is a*

- 6 *principal forum where the managers of a company (Directors) present a detailed accountability to the shareholders about the state of affairs of the company and how the company is managed in relation to the set objectives of the company. It is* - 9 *a mechanism of accountability to shareholders and shaping the business of the Company while complying with the law. It is at the Annual General Meeting that the shareholders will design and channel paradigms of how the company shall* - 12 *operate in the future and iron out other management issues. Whereas court is granted powers under section 142 of the Companies Act to postpone an Annual General Meeting or direct the manner in which it may be organized, given its* - 15 *principal role in maintaining the corporate existence of a company the postponement shouldn't be granted casually. A case should be made out by the directors to cause such a postponement and efforts put in place to have one.* 18 - *----------------------------------------------------------------------------------------------------*

#### **RULING**

21 **………………………………………………………………………………………**

#### **Introduction:**

This application was brought under the provisions of the Companies Act Cap. 106 by

- 24 Mr. Osiime Kagaba Kakyali a Director on the Board of Directors of Mpanga Tea Growers Factory Limited seeking orders that: - 1. The Respondent be granted leave to convene the Annual General Meeting for the - year ended 31 27 st December 2022 at such a time when the finances and logistics of the company can allow.


- 2. That the term of the Board of Directors which expired on 12th March 2023 and 15th September 2023 be extended up to the next Annual General Meeting when - 3 elections can be held. - 3. That costs of the application be provided for.

# **Grounds of the Application:**

- 6 Mr. Osiime Kagaba Kakyali in the affidavit in support of the application deposed as follows: - (1)That he was a member of the Respondent company Mpanga Tea Growers Factory - 9 Limited that is registered as Number 111083 on the Companies Register and a Director on the Board of Directors for the company. That the Respondent was a public company incorporated on 19th January 1971 and had approximately 1,137 - 12 members both natural and artificial. - (2)That it is a requirement under the articles of the company as amended in 2021 to convene an Annual General Meeting of every concluded financial year. That the - 15 articles require that the meeting has to be physical and the required quorum is at least 1/3 approximately 379 members in attendance in person or through proxy. - (3)That currently it is impracticable to convene the general meeting of the company - 18 in the usual manner in the accordance with the articles due to financial and logistical challenges since holding such a meeting would requires a sum of 91,587,600/- which the company is unable to raise currently. - 21 (4)That further due to financial constraints, the Audited Books of Accounts and Financial Statements of the company for the year ending 31/12/2022, approval of which is one of the core business at the Annual General meeting, are not yet 24 ready.


- (5)That the Respondent is mandated under the Articles to hold an Annual General Meeting for the year which ended 31/12/2022 by 8th March 2024 but it cannot do - 3 so due to the reasons stated above and thus it is crucial that the meeting be deferred to such a time when the finances and the logistics of the company can allow so that all members who are entitled to attend do attend. - 6 (6)That it is impractical to hold a virtual Annual General meeting since majority of the members and shareholders are not in position to access the internet or computer since most of them are based in rural areas. That the company was - 9 working around the clock to secure funds and have the Annual General Meeting convened.

(7)That the term of office of the Directors of the Company having expired and they

12 can only be re-elected at the Annual General Meeting which cannot take place and thus it is fair that the same is deferred to a future date.

#### **Reply of the Respondent:**

15 In response to the application, Kwezi Violet, the Respondent's Acting General Manager deponed as follows:

(1)That for the past two years as reflected in the Company's Audited Books of

- 18 Accounts and Financial Statements, the company has not been doing well financially and this was worsened by the prevailing crisis in the tea industry where the prices for tea at the World Market have collapsed, and the collapse - 21 of Mombasa Auction Market thus crippling the company's finances. - (2)That as a result, the company has not been in position to prepare the Audited Books of Accounts and Financial Statements relevant at the Annual General 24 Meeting.


- (3)That the company also lacks the required finances and logistics to hold the said meeting which must be physical due to the large number of the 3 shareholders and the fact that majority are illiterates and live in villages with no network to allow a virtual meeting.

(4)That the terms of the Board of Directors has expired and can only be extended 6 through a re-election at the Annual General meeting which is not feasible to hold currently.

(5)That the company was doing all it can to mobilize resources for the said 9 meeting including seeking assistance from government; it is thus fair that the application is granted to allow the company organize a meeting at such a time when it is convenient and for the term of the Board of Directors of the 12 company to be the extended so that the company is not left in a limbo without a governing structure.

# **Representation and Hearing:**

15 *Mr. Musinguzi Benard of M/s Kayonga, Musinguzi & Co. Advocates* appeared for the applicant while the Respondent was self-represented by the Acting General Manager. Mr. Musinguzi filed written submissions and attached authorities which I 18 have duly considered herein.

#### **Issues***:*

**Whether or not, the time within which the Respondent is to hold an Annual** 21 **General Meeting should be deferred to a future date when the company will have resources to have one and whether the term of the Board of Directors should be extended.**


#### **Legal Arguments:**

Mr. Musinguzi invited me to Section 142 of the Companies Act arguing that under 3 the said provision, court has powers to extend the time within which a company is to hold its Annual General Meeting among other remedies. He me to the cases of, *In the matter of Kayonza Growers Tea Factory Ltd, HCMC No. 33 of 2020; in the* 6 *matter of Igara Growers Tea Factory Limited, HCMC No. 33 of 2020 and HCMC No. 1 of 2023 in Osiime Kagaba Kakyali v Mpanga Growers Tea Factory Limited* where court issued similar orders. He thus asked me to allow the application and the 9 orders sought.

#### **Consideration by Court:**

Section 142 of the Companies Act Cap. 106 provides that:

12 *(1) Where for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called or conduct the meeting of the company in the manner prescribed by the articles or this* 15 *Act, the court may of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting order a meeting of the company to be called, held and* 18 *conducted in the manner the court thinks fit.*

*(2) Where an order is made under this section the court may give such ancillary or consequential directions as it thinks expedient and it is declared* 21 *that the directions that may be given under this subsection include a direction that one member of the company present in person or by proxy shall be taken to constitute a meeting.*


# *(3) A meeting called, held and conducted in accordance with an order under subsection (1) shall for all purposes be taken to be a meeting of the company* 3 *duly called, held and conducted.*

In addition to the above provisions, this court is empowered under Section 33 of the Judicature Act, to grant absolutely or on such terms and conditions as it thinks just, 6 all such remedies as any of the parties to a cause or matter is entitled to in respect of any legal or equitable claim properly brought before it, so that as far as possible all matters in controversy between the parties may be completely and finally determined 9 and all multiplicities of legal proceedings concerning any of those matters avoided. Further, under Section 98 of the Civil Procedure Act, this court has inherent powers to make such orders as may be necessary for the ends of justice.

- 12 An Annual General Meeting of a company is an important aspect in the management and operations of a company. It is a mechanism of accountability to shareholders and shaping the business of the Company while complying with the law. The 15 Company being a separate legal entity and distinct from its shareholders and Directors, operates through human agents that is; the Board of Directors appointed in compliance with Articles of Association registered with Registrar of Companies, - 18 to have conduct of operations and management of the Company in compliance with the law. (**See: Salomon Co Ltd vs Salomon 1897 AC 22 H. L &** *[Alisen Foundation](https://ulii.org/akn/ug/judgment/ughc/2023/108/eng@2023-11-13) [Group of Companies Limited v Bazara \(HCT-01-CV-MA 54 of 2023\) \[2023\]](https://ulii.org/akn/ug/judgment/ughc/2023/108/eng@2023-11-13)* - 21 *[UGHC 108 \(13 November 2023\).](https://ulii.org/akn/ug/judgment/ughc/2023/108/eng@2023-11-13)* A general meeting of members is the principal forum where the managers of a company (Directors) present a detailed accountability to the owners of the company (shareholders) about the state of the 24 affairs of the company and how the company is managed in relation to the set - objectives of the company. It is at the Annual General Meeting that the shareholders

 will design and channel paradigms of how the company shall operate in the future and iron out other management issues.

3 An Annual General Meeting should be organized annually or within such time frames as agreed upon by the shareholders as commanded by the Companies Act and the Articles of the company. The Directors of the company have a duty to ensure 6 that a company complies with the requirements of the law but not to take decisions that benefit them at the detriment of the owners of the company (Shareholders). This was expounded in the persuasive dicta of *Agricultural Development Corporation* 9 *of Kenya vs Nathaniel K. Tum & Anor [2014] eKLR* where the court observed that;-

*"Therefore, the directors assume the responsibility of ensuring that the company abides by all legal requirements; all that will preserve its juristic* 12 *personality and property; and avoiding default that would attract serious legal sanctions, or affect its juristic personality and assets. The legal requirements include; accountability of its business to the shareholders* 15 *and to the law; operations; directorship; liabilities; assets; payment of taxes, only to mention but a few. Besides liability on the directors, if a company fails to observe the legal responsibilities and obligations set out* 18 *in law, it will face serious legal penalties and sanctions; some default may occasion temporary disablement but there are others which are dire and may lead to its de-registration or winding-up. Should the gravest of the* 21 *consequences for non-compliance with the law attach, the juristic existence of the company is decimated and the property may fall bona vacantia to the government."*


The law vests in the Directors the duty to call for an Annual General meeting in compliance with the requirements of the law. Where the Directors have without any

- 3 just cause refused to call for an Annual General Meeting or where it is impracticable to hold such meeting, the court may, under Section 142 of the Companies Act be petitioned or on its own motion, have the meeting postponed or ordered that one be 6 convened in such a matter as court deems practicable. However, even with these - powers, courts should be reluctant to intervene in the internal management of companies unless there is justification to do so. Thus a party who seeks to move 9 court under section 142 must in my view raise a patent justification that warrants

court's intervention in the internal issues of a company.

Notably, since an Annual General Meeting is the principal forum where shareholders 12 get to participate in the affairs of the company, postponing such an important company event must be done sparingly and in the interests of the company and not the convenience of the Directors. A case should be made out by the directors to cause

- 15 such a meeting to be postponed or extended to a future date. Moreover Section 142 (2) of the Act gives court powers that include a direction that one member of the company present in person or by proxy shall be taken to constitute a meeting, which - 18 to my understanding means that court can in appropriate cases vary the required quorum for an Annual General Meeting.

In the present application, Mr. Osiime Kagaba Kakyali stated that the Respondent 21 per the provision of her Articles is supposed to conduct an Annual General Meeting (AGM); that however, it is impracticable to have the AGM due to financial and logistical challenges. He further stated that the audited books of accounts are also 24 not ready, which is a crucial agenda item at the Annual General Meeting since it must be adopted by the shareholders. That the company in its current financial


standing is incapable of raising shs 91,587,600/= required for the said activity. He further stated that it is impossible to have a virtual meeting since most of the

3 Respondent's Members stay in villages with limited access to the internet and a computer. In reply, Kwezi Violet, the Acting General Manager of the Respondent supported the averments by Mr. Osiime. She also confirmed that the company was 6 not financially well and it was impracticable to hold a virtual Annual General

Meeting since most of the members are illiterate and stay in villages. She further indicated that the term of office of the current Board of Directors expired thus the 9 company is running without a Board and asked for their term to be extended.

I have considered the averments in the affidavit supporting the motion, the annexure thereto and the reply on behalf of the Respondent. It appears from the evidence on 12 record that there has never been an Annual General Meeting of the shareholders of the Respondent since 2021. In the year 2022, the same Osiime Kagaba Kakyali, asked court to have the time within which to organize an Annual General Meeting

- for the Respondent for the year ended 31st December 2021 to be extended to 8th 15 December 2022 an order which Court granted on 5th December 2022. The company was granted leave to hold the Annual General Meeting for the year ended 31st - 18 December 2021 on 8th December 2022. It appears no such meeting was conducted since there is no evidence to that effect. The same person herein comes back in 2024 seeking leave to convene the Annual General Meeting for the year ended 31st - 21 December 2022 at such a time when the finances and logistics of the company can allow. The applicant is citing the same ground of financial stress by the Respondent. It means that to-date, no Annual General Meeting has been held for more than 3 24 years.


I believe the Respondent being a public limited liability company with a shareholding of about 1,137 it is dangerous to leave the entire management of the 3 Respondent in the hands of the Directors and the Managers without involving the shareholders through an AGM, for such a long time. I believe there are easier ways of holding such a meeting so that shareholders are enlightened about the financial 6 difficulties the company is going through so that they can journey proposals on the way forward. The Directors and Managers seem to paint the narrative that the company's financial struggles belong to them as the company leaders, and thus, the 9 shareholders should only be engaged if money is available. I find this to be a dangerous company management paradigm to adopt. The company should find ways to call for an Annual General Meeting, present financial reports to the shareholders, 12 and demonstrate to the members how the company is financially struggling, the efforts they have put in place to bring it back to the proper financial rails, and seek members' proposals on mechanisms to revive the company from the alleged 15 financial stress its going through.

Mr. Osiime in High Court Misc. Cause No. 001 of 2023 had stated that the Directors intended to call for an Annual General Meeting to be held on 8 th December 2022 and 18 the same was not done. He has again come to court asking for a similar order to extend time for holding an AGM. Moreover, this time there is no commitment as to when such meeting is to be held, only stating that the Respondent be granted leave to convene the Annual General Meeting for the year ended 31 21 st December 2022 at such a time when the finances and logistics of the company can allow.

This practice, which I find undesirable, and not in the best interests of the members, 24 should not be encouraged by court or left unabated. This is because it has the consequential effect of the company Directors and Managers using court as a cover


for not calling for an Annual General Meeting which is central to the interests of the shareholders. The period of over three years is a long time without holding an Annual

3 General Meeting for the same excuses. In the first application, Mr. Osiime indicated that they had not compiled the Audited Books of Accounts and Financial Statements. The same excuse is being presented now. I find no honest justification in the 6 narrative from Mr. Osiime. In the result, I decline to grant the reliefs in the format sought and issue the following orders:

**1. That the term of the Board of Directors of the Respondent (Mpanga Tea Growers Factory Limited), which expired on 12th March 2023 and 15th** 9 **September 2023 is hereby extended from those dates, up to a period of 3 months from today and shall immediately lapse after election of a new** 12 **board and the in event the Annual General meeting is not convened, it shall lapse within three months from today.**

- **2. That an Order is hereby issued directing the Directors of the Respondent** 15 **to convene an Annual General Meeting within the available resources, to be held within a period not exceeding 3 months, from the day and in default thereof, the members shall be at liberty to cause an Annual** 18 **General Meeting to be held, in line with the relevant laws and regulations.** - **3. That an Order is hereby issued directing and permitting the Directors of the Respondent to use all available and alternative mechanisms to ensure** 21 **the convening of the said Annual General Meeting and the effective participation of members therein.**

**4. For the purpose of the said Annual General Meeting to be held, in light** 24 **of the prevailing financial and logistical constraints faced by the**


**company, a reduced quorum is hereby permitted, being a minimum of 120 members representing approximately 10% of the total membership.**

- 3 **5. Members may appoint proxies in a specified manner to represent them at the said Annual General Meeting.** - **6. I make no orders as to costs.** - 6 **I so order.**


Vincent Wagona

9 **High Court Judge / FORTPORTAL DATE: 16/08/2024**