Tabaro & Another v Mohammed & 2 Others (Miscellaneous Cause 34 of 2020) [2024] UGCommC 155 (22 April 2024)

Full Case Text

# 5 **THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA [COMMERCIAL DIVISION]**

### **MISCELLANEOUS CAUSE 34 OF 2020**

| 10 | 1. EDWIN TABARO [AS RECIEVER OF PAN AFRIC | ] | | |----|----------------------------------------------|---|-------------| | | COMMODITIES LIMITED] | ] | APPLICANTS | | | 2. ORIENT BANK LIMITED | ] | | | | VERSUS | | | | 15 | 1. MOHAMMED MOHAMMED HAMID | ] | | | | 2. ABDUL LATIF HAMID | ] | RESPONDENTS | | | 3. PAN AFRIC COMMODITIES LIMITED | ] | |

20 **Before: Hon. Justice Ocaya Thomas O. R**

#### **JUDGMENT**

#### **Introduction**

- 25 This application is premised on Section 185 of the Insolvency Act, Section 98 of the Civil Procedure Act and Order 52 Rule 1 of the Civil Procedure Rules. The Application seeks the following reliefs: - (a) An order doth issue directing the 1st and 2nd Respondents to make available to the Applicant (sic) all documents and all information relating to all the property under 30 receivership to wit; all company stocks and recievables registered under Debenture Certificate No. 19827 dated 22 September 2015 and Certificate No. 18682 dated 16 October 2015, Hebei Huangpai Food Machine & ABC Hansen Flour Milling machines and Bakery Machine INO AYA Bakery (U) Ltd registered under certificate No. 19828 dated 22 September 2015 - (b) An order directing the 1st 35 and 2nd Respondents to verify by statutory declaration that all documents and information made to the Applicant are complete and correct.

- (c) An order doth issue directing the 1st 5 and 2nd Respondents restrain (sic) from obstructing and/or interfering with the lawful receivership of the 3rd Respondent. - (d) Any other orders declaring the rights of the Applicants as this Honourable Court may think just. - (e) Costs be paid by the 1st and 2nd Respondent. - 10

### **Background**

The facts of this cause, according to the Applicants, are briefly as below. The 1st Applicant was appointed as receiver of the 3rd Respondent by the 2nd Applicant. The 1st and 2nd Respondents are directors in the 3rd Respondent. On 15 November 2018, the 3rd 15 Respondent received three credit facilities from the 2nd Applicant comprising of a letter of credit for USD 1,700,000 (United States Dollars One Million, Seven Hundred Thousand only) and two overdrafts of USD 600,000 (United States Dollars Six Hundred Thousand only) and UGX 1,000,000,000 (Uganda shillings One Billion). The above stated facilities were secured by a floating charge over all company stock and receivables registered 20 under Certificates No. 19827 dated 22 September 2015 and Certificate No. 18682 dated 16 October 2015 as continuing security as per the facility letter Ref OBL/ADV-324/002/17 dated 19 January 2017.

- Under Clause 6 of the Debenture, the securities are treated as a continuing security for 25 any mortgage or security held thereafter by the bank. The facilities were disbursed and used by the Respondents who defaulted on repayment of the same. On 24 September 2019, a demand notice was served on the Respondents and thereafter, on 11 October 2019, a notice of default was served but there was no compliance with the same. As of October 2019, the Applicant's debt obligation stood at UGX 946,017,562 and USD 30 2,369,348.

On 20 March 2020, the 1st Applicant accepted the appointment as receiver and as a result, in accordance with Section 176(2) of the Insolvency Act, receivership commenced. Since commencement of receivership, the 1st and 2nd Respondents have refused to avail the

35 Applicants with the necessary documents and information to allow them to undertake receivership. The 1st Applicant asserts that he has been obstructed from access to the properties under receivership and that the process of receivership has strict timelines

5 which must be adhered to. Accordingly, the Applicants commenced this application and assert that it is in the interests of justice that the same be granted.

For the Respondents, this application was opposed. The Respondents contended that

- (1) This application is misconceived and brought in bad faith - 10 (2) This application was filed after the expiry of the certificate of receivership and to date, no application has ever been filed to have the same extended or renewed. - (3) Failure to renew and extend a certificate of receivership is an illegality - (4) The receiver has recovered unknown sums of money and the sums claimed as owing are untrue. - 15 (5) The full management of the 3rd Respondent and the relevant documents were handed over to the Applicants while taking over the office. - (6) Debenture documents are public documents which can easily be accessed from the company registry. - (7) The 1st Applicant has had all the management powers and custody of all 20 documents of the 3rd Respondent and the failure to discharge his receivership duties is his own making. - (8) The 1st Applicant is illegally acting as a receiver, having given notice of receivership more than 14 days after the start of receivership. - (9) Receivership is not perpetual and the 3rd Respondent's business has been stalled - 25 by receivership for over twelve years now.

Accordingly, the Respondents averred that the application was moot and ought to be dismissed with costs in the interests of justice.

- 30 In Rejoinder, the Applicants contended that: - (1) No sums have been recovered since commencement of receivership owing to the fact that the 1st and 2nd Respondents have since the start of receivership failed and refused to hand over the charged assets or any documents/information required to conduct the receivership - 35 (2) Receivership lasts until the sums owing are recovered which is not yet the case and the alleged certificate of receivership is neither known by the Applicants nor in the law of insolvency

- 5 (3) The Respondents have illegally and in breach of the debenture deeds refused or declined to release the charged assets and documents thereby necessitating this application. - (4) The Application seeks the following documents and assets; Hebei Huangpai Food Machine & ABC Hansen Flour Milling machines and Bakery Machine INO AYA 10 Bakery (U) Ltd and all company inventories, books of account, stocks and other assets. - (5) The assertion that the above stated documents is aimed at misleading court and further frustrating receivership. - (6) There wasn't an issuance of delayed notice of receivership and even if this were so, 15 the same wouldn't justify the refusal to release the charged assets and documents sought above. - (7) The willful refusal by the Respondents to release the assets and documents sought have made it impossible to produce and file the necessary statutory reports in accordance with the law. - 20 (8) The 1st Applicant was appointed on 20 March 2020 and accordingly, receivership has not lasted 12 years as asserted by the Respondents.

### **Representation**

The Applicants were represented by M/s KTA Advocates. The 1st and 2nd Respondents 25 were represented by M/s Akampumuza & Co. Advocates and the 3rd Respondent was represented by M/s Alliance Advocates.

### **Evidence and Submissions**

The Applicants led evidence by way of an affidavit in support of the notice of motion and an affidavit in rejoinder deponed by the 1st Applicant. The 1st 30 and 2nd Respondents led evidence by way of affidavits in reply deponed by them while the 3rd Respondent led evidence by way of an affidavit in reply deponed by the 1st Respondent, its director.

All parties filed submissions in support of their respective cases. I have considered all the

35 submissions of the parties before coming to the ruling below, suffice to say that I have not seen the need to reiterate the same below.

### 5 **Decision**

### **PART ONE: DECISION ON PRELIMINARY POINT OF LAW**

### Admission

The Applicants prayed for judgment on admission against the 2nd Respondent, contending 10 that their failure to enter evidence in opposition to the averments of the applicant constituted an admission.

A judgment on admission is a judicial discretion which may be issued where there is a positive, unequivocal, clear and unambiguous admission. See **Order 13 rule 6, The**

15 **Board of Governors Nebbi Town SSS v Jakker Food Stores Ltd HCMA 62/2016, Industrial and Commercial Development Corporation v Daber Enterprises Ltd, [2000] 1 EA 75, Continental Butchery Ltd v Ndhiwa, [1989] KLR 573**

There is an affidavit in reply by the 2nd Respondent filed on 24 August 2023 and 20 constitutes part of the evidence on record. The affidavit does not contain a clear, unequivocal and positive admission of the contentions of the Applicants and accordingly, I overrule this objection.

### **PART II: DECISION ON MERITS**

### 25 Locus Standi

In **King's College Budo Staff Savings Scheme Limited v Zaverio Samula & Ors HCCS 26/2020** locus standi was defined thus:

"Locus standi was held to mean a right to appear in court, and conversely to say that a person has no locus standi means that he/she had no right to appear or be heard in a

30 specified proceeding."

A person must have locus standi to bring an action or seek relief, in order to avoid court being flooded by actions of "busy bodies". In **Dima Dominic Poro v Inyani Godfrey & Anor HCCA 16/2016**, the court held thus on this issue;

35 "It is trite that save in public interest litigation or except where the law expressly states otherwise, such as article 50 (2) of The Constitution of the Republic of Uganda, 1995 which confers on any person or organisation the right to bring an action against the violation of another person's or group's human rights, for any person to otherwise have

- 5 locus standi, such person must have "sufficient interest" in respect of the subject matter of a suit, which is constituted by having; an adequate interest, not merely a technical one in the subject matter of the suit; the interest must not be too far removed (or remote); the interest must be actual, not abstract or academic; and the interest must be current, not hypothetical. The requirement of sufficient interest is an important safe-guard to prevent - 10 having "busy-bodies" in litigation, with misguided or trivial complaints. If the requirement did not exist, the courts would be flooded and persons harassed by irresponsible suits."

## See also **Cwezi Properties v UDB HCMA 1315/2022, Stanbic Bank Uganda Limited v Kesacon Services Limited HCMA 824/2023**

The Respondents contend that the Applicants do not have locus standi to commence this application because the Applicants are purporting to act on a void/nonexistent security. The Applicants assert that the 2018 facility was not secured by a debenture and that even if the debenture were to be asserted as a continuing security, the same was not registered 20 as a charge for the fresh facility in accordance with Section 105 of the Companies Act. The Applicants assert that this issue is among the matters which are being litigated between the parties in HCCS 334/2020 which is currently pending before this court.

Owing to the fact that these issues are live issues pending determination in another 25 matter, I am inclined against making findings which might have the effect of determining them. I however agree with the contentions of the Applicants that Section 105 makes unregistered charges of company property void as against the creditors or receiver of company and the Respondents are neither. On the face of it, the finance documents between the parties appear to authorize the appointment of a receiver which the 2nd 30 Applicant has done. An in depth consideration of the efficacy and validity of those documents are for the court in HCCS 334/2020 and not this application.

In **Stanbic Bank Uganda Limited v Kesacon Services Limited HCMA 824/2023** court held that separate litigation involving debtors and lenders does not per se preclude 35 proceedings by lenders to enforce their rights under lending agreements. See in **Bank of Rajasthan Limited v. VCK Shares & Stock Broking Services Limited CIVIL APPEAL NOS.8972-8973 OF 2014, Indian Bank vs Abs Marine Products Pvt. Ltd Appeal 10074-10075 of 2003**

5 Accordingly, I find that the continuation of this application, especially because it doesn't determine the rights of the parties in HCCS 334/2020 or otherwise affect the remedies available parties beyond restitution, can proceed simultaneously with HCCS 334/2020. I also find that, in part because there isn't a temporary injunction or application for the same in HCCS 334/2020, this application can be determined before HCCS 334/2020 is

10 disposed off.

### Payment of 2014 and 2015

Whereas the Respondents contended that the sums due have been paid. No proof of this was supplied. The Applicants, vide Annexure D, presented a statement showing that USD 15 2,369,348 (United States Dollars Two Million, Three Hundred Sixty Nine Thousand, Three Hundred Forty Eight only) is owing and remains unpaid. Moreover, the Respondent asserted that the 1st Applicant has collected money from the receivership over the 3rd Respondent and thus no sum is owing. This, at the very least, recognizes that a sum of money was due at receivership. This, coupled by the fact that no evidence was adduced to

20 prove the collection of this money significantly discredits the Respondents' assertions.

It is trite law that courts base their decisions on evidence and not assumptions, abstractions or innuendos. See Also **Centenary Bank v Federation Of Association Of Uganda Exporters Limited & Ors HCCS 474/2016, Luswata Mary Veronica v Exim** 25 **Bank HCMA 1118/2023, Smile Communications Limited v ATC Uganda HCMA 2314/2023, Vantage Mezzanine Fund II Partnership & Anor v Commissioner Land Registration & Ors HCMA 2484/2023**

I therefore find no basis, at this stage, that the monies owed were paid. Of course, this 30 finding will abide the court's own finding, after leading of evidence in HCCS 334/2020.

### Appointment of The 1st Applicant

It was asserted that the 1st Applicant's appointment was invalidated by the failure by the 1st Applicant to provide statutory notice of appointment within fourteen days in 35 accordance with fourteen (14) days in accordance with Section 178(2) of the Insolvency Act. - 5 Section 178(4) of the Insolvency Act provides that the non-compliance with the notice requirement doesn't invalidate the appointment and accordingly, subject to the other provisions of the law, a receiver who fails to comply with Section 178(2) of the Insolvency Act remains validly appointed and their exercise of the powers of the receiver is not affected by the same. - 10

A party aggrieved may commence proceedings against the receiver for any loss that they incur from non-compliance with Section 178(2) of the Insolvency Act subject to their existence of a valid cause of action. Further, institutions so empowered may prosecute the receiver under Section 178(6) of the Insolvency Act None of the above sanctions deal with 15 the receiver's exercise of their authority. I have, therefore, for those reasons, not felt the

need to dive into the 1st Applicant's contention that their compliance with the above requirement was occasioned by the disruption caused by the COVID-19 pandemic.

I find that the above non-compliance has no bearing on this application.

# Length

The Respondents objected to this application asserting that the applicant has exhausted the statutory timeframe for receivership. As will be seen below, the power to appoint of a receiver is a contractual right utilized by a creditor in a manner akin to the utilization of

25 a pledged security. Therefore, a receiver may, subject to law and the instrument providing for their appointment, continue to act as a receiver until all the sums due and owing are recovered.

I am strengthened in this view by Sections 189-197 of the Insolvency Act which provides 30 for the termination of receivership by court. The provisions do not place a time limit on receivership and I found no basis for this contention by the Respondents.

I take the view that receivership may therefore only be terminated by court or in accordance with the debenture under which the power to appoint a receiver is provided

35 for, or such other valid agreement by the parties.

# Order for Compliance

**Section 183** of the Insolvency Act provides thus:

5 "(1) Where the grantor is a company in an administrative receivership, the company shall not exercise any of its functions or powers and a director or secretary shall not exercise his or her functions or powers, except with the administrative receiver's approval which may be general or specific.

(2) The grantor shall make available to the receiver all documents and information 10 relating to the grantor and to all the property under receivership and give all assistance reasonably required by the receiver.

(3) If required by the receiver, the grantor shall verify by statutory declaration that the material and information made available to the receiver is complete and correct.

(4) Where the grantor is a body corporate—

- 15 (a) it shall make the seal available for use by the receiver on any document required to be executed under the seal; - (b) each director and secretary shall comply with this section as if the director or secretary was the grantor.

(5) A person who does not comply with this section commits an offence and on conviction

20 shall be liable to a fine of one hundred and sixty-eight currency points of imprisonment not exceeding seven years."

A grantor is defined in **Section 2** of the Insolvency Act as "a person in respect of whose property a receiver is or may be appointed".

# **Section 185** of the Insolvency Act reads thus;

"Where a person does not comply with section 183 or with a request of the receiver made under that section, on the application of the receiver, the court may order the grantor or any director or secretary, to comply and may make ancillary orders as it 30 thinks fit."

One of the objectives of modern insolvency law arising from corporate borrowing is the recovery of monies lent, within a framework that recognizes other competing interests of the various stakeholders in respect of the indebted entity. See **Corporate Insolvency**

35 **Law: Principles and Perspectives, 2nd Edition by Vanessa Finch and Donald Korobkin, Chapter 2, Pages 29-65**

- 5 As the learned authors in the above text note, receivership is both an institution and a process. Traditionally, there have always been two types of receivers; one appointed by debenture holders in accordance with the deed and those appointed by court. The administrative receiver was an institution created under the Insolvency Act 1986 of the UK and referred to a person appointed by the holders of a debenture secured by a charge - 10 as the receiver and manager of the whole or substantially all of the assets of the debtor. See **Corporate Insolvency Law: Principles and Perspectives, 2nd Edition by Vanessa Finch and Donald Korobkin, Pages 327-331**

As Tolme notes, initially, all receivership was court appointed. However, the practice 15 emerged for mortgagees to include a provision enabling them to appoint a receiver in agreements with the mortgagor. See **Corporate Insolvency Law, 2nd Ed by Fiona Tolme P. 49**

In respect of receivership arising from corporate borrowing, the debenture instrument 20 will typically outline the circumstances under which a receiver may be appointed and the scope of their powers. See **Bank of Baroda v. Panessar [1986] BCLC 497**

In receivership, the company's corporate existence is not affected, and the company's operations largely continue, except that legal control of the company shifts to the receiver

25 who directs the operations of the company. **See Finch (above) P.332, Re Joshua Shaw & Sons Ltd [1989] BCLC 362, Corporate Insolvency Law, 2nd Ed, Fiona Tolme (above) P. 49-56**

Essentially, therefore, as regards corporate borrowing, the power to appoint a receiver is 30 a right conferred on the lender to appoint a third party to recover the sums due and owing from the lender's business within the scope provided in the finance document (either to manage and take over all assets and the business, or just some of the assets and so on).

The major duty of the receiver is the primary obligation is to act bona fide to realise the 35 assets of the company in the interests of the debenture holder but the receiver owes duties to the mortgagor akin to those of a mortgagee liquidating a pledged asset. See **Section 179(1) of the Insolvency Act**, **Gomba Holdings UK Ltd and Others v. Homan and Bird [1986] 1 WLR 1301, Re B. Johnson & Co. (Builders) Ltd [1955] Ch 634;**

# 5 **Downsview Nominees Ltd v First City Corporation [1993] AC 295, Medforth v. Blake [1999] 3 All ER 97, Silven Properties and Another v. The Royal Bank of Scotland plc [2003] BCC 1002**.

In Goode, cited by Finch (above), a receiver is defined thus

10 "he can best be described as an independent contractor whose primary responsibility is to protect the interests of his appointor, but who also owes a duty to his deemed principal, the company, to refrain from conduct which needlessly damages its business or goodwill, and a separate duty, by statute, to observe the priority given to preferential creditors over claims secured by a floating charge."

#### 15 See **Finch (supra) P334**

It follows that, for the receiver to be able to manage the affairs of a company in order to enable recovery of the sums that are due, they ought to be provided with the charged assets and all necessary information and documents to enable the receivership 20 commence and continue. This more so because a receiver has rights in rem in respect of the charged property. See **Finch (supra), P333, Section 180(2)(a) of the Insolvency Act**

Section 185 of the Insolvency Act provides a coercive measure to the liquidator to ensure 25 that there is compliance by third parties with the liquidation process, including the provision of all types of assets or documents as the liquidator may require or be entitled to receiving. The provision is also somewhat of a double-edged sword protecting third parties against a receiver's misuse of their power by compelling them to take actions which have no legal or contractual basis. **See: In the matter of Star Elm Frames Ltd**

30 **[2019] IECA 231, Grant v Arena Alceon NZ Credit Partners LLC [2023] NZHC 3048,**

In this application, the Applicants seek possession of two types of items; assets charged under the debentures and records and information relating to the business of the 3rd Respondent. For the Respondents, it was contended that those assets were handed over 35 and the documents were left in the premises of the company.

I have considered the evidence on record. It is fairly surprising that, considering the charged assets sought to be recovered, which, from my impression are fairly big machines,

- 5 that there is no written record of their handover, or some sort of correspondence or photographic evidence alluding to the said handover. Further, even if the oral evidence contained in the affidavits are to be weighed side by side, I found the evidence of the Applicants was more detailed and explorative of the issues, as opposed to the evidence of the 1st and 2nd Respondents which largely said very little. If indeed the machines were - handed over, the evidence of the 1st 10 and 2nd Respondents would have been more detail supplying, pointing to specific dates or periods, times, and even the manner/mode of handing over the same, as witnesses testifying to lived experience tend to be more detailed. - 15 I found the evidence of the Applicants that no such charged assets were handed over more convincing the contrary assertions by the Respondents and I found it more probable than not that the Respondents, being indebted, would be more likely than not to be uncooperative with the receivership process. - 20 With regards to the documents and records, my views are the same as above. I found the Applicant's evidence more convincing than that of the 1st and 2nd Respondents who, essentially, simply denied not being cooperative and left it at that when they could have indicated, with some clarity, where the said records were handed over, how and to who. - 25 I therefore find that the applicant has made out sufficient grounds for the orders sought.

#### **Costs**

As a rule of law, costs ordinarily follow the event and a successful litigant receives his or her costs in the absence of special circumstances justifying some other order. Where the

- 30 successful party has been guilty of some misconduct, an order of costs may not be granted. See **Section 27(2) Civil Procedure Act, Harry Ssempa v Kambagambire David HCCS 408/2014, , Iyamuleme David vs. AG SCCA NO.4 of 2013, Kwizera Eddie v Attorney General SCCA 1/2008, Kinyera George v Victoria Seeds Limited HCCS 604/2015, Anglo-Cyprian Trade Agencies Ltd v. Paphos Wine Industries Ltd, [1951]** 35 **1 All ER 873**.

**Section 181(2)(b)** of the Insolvency Act empowers the receiver to manage the affairs of the company and exercise the powers of the directors.

#### 5 In **Green Meadow v Patrice Namisono HCMA 1368/2022** court held thus

"The position at law is briefly this; a suit or defence by a company should be duly authorised. This authorisation depends on the memarts and/or other applicable constitutional or other documents of the company. The existence of a resolution of the company authorising the commencement of a law suit or defence is only one way of

10 proving that the suit or defence is so authorised, but not the only one, such that its absence means the suit is incurably defective. Further, a suit or defence may be commenced without authority. Once this is so, the suit or defence is defective except if ratified by the company."

# See **M/s TATU NAIGA & Co. Emporium v Verjee Brothers Limited SCCA 8/2002, Soon** 15 **Productions v Soon Yeon Hong Kim Dong Yun HCMA 190/2008, United Assurance v Attorney General SCCA 1/1998**

Unless restricted by the debenture, the receiver essentially replaces the directors and takes control of the company. The Receiver, from the date of commencement of 20 receivership, exercises the functions of the board. I have read the debenture annexed to the Applicants' affidavit in support and the same does not include such limitation of the receiver's power. It follows therefore that no party, much less the 1st and 2nd Respondents, could authorize a defence in this action by the 3rd Respondent or instruct counsel to handle this matter on behalf of the 3rd Respondent. This is because the person exercising 25 such powers in respect of the 3rd Respondent is the 1st Applicant.

It follows that M/s Alliance Advocates who acted for the 3rd Respondent did not have instructions as it is only the 1st Applicant who could have instructed them. Further, for the Applicants, it wasn't clear why they needed to proceed against the 3rd Respondent who 30 was not a custodian of the documents or assets sought, per se. I therefore find both the Applicants and M/s Alliance Advocates at fault for this state of affairs. It follows that the Applicants shouldn't have dragged the 3rd Respondent in these proceedings. Thus, whereas M/s Alliance Advocates would have borne the Applicants' costs, the Applicant is equally at fault. Accordingly, I find myself unable to condemn the 3rd Respondents to costs

35 of this application or to condemn the 3rd Respondents advocates, who were not instructed by the 1st Applicant for the Applicants' costs.

### 5 **Conclusion**

The Applicant's application succeeds and I make the following orders:

- (1) An order does issue directing the 1st and 2nd Respondents to make available to the Applicants all documents and all information relating to all the property under receivership to wit; all company stocks and receivables registered under 10 Debenture Certificate No. 19827 dated 22 September 2015 and Certificate No. 18682 dated 16 October 2015, Hebei Huangpai Food Machine & ABC Hansen Flour Milling machines and Bakery Machine INO AYA Bakery (U) Ltd registered under certificate No. 19828 dated 22 September 2015 within thirty (30) days from the date of this judgment. - (2) An order does issue directing the 1st 15 and 2nd Respondents to verify by statutory declaration that all documents and information made to the Applicant are complete and correct within thirty (30) days from the date of this judgment. - (3) An order does issue against the 1st and 2nd Respondents restraining them from obstructing and/or interfering with the lawful receivership of the 3rd Respondent. - (4) Any order does issue requiring the 1st 20 and 2nd Respondents, within thirty (30) days from the date of this judgment to issue a bond to comply with this judgment for a sum to be determined by the Registrar of Court which may be forfeited to the Applicants in the event of non-compliance with this judgment. - (5) Costs be paid by the 1st and 2nd Respondent. - 25

# **I so Order**

**DATED** this\_\_\_\_\_\_\_\_\_day of\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_2024, delivered electronically and **UPLOADED** on **ECCMIS**. 22nd April

**Ocaya Thomas O. R Judge 22nd April 2024**