THE PROCESS OF WINDING UP A COMPANY OR BUSINESS IN UGANDA: All you need to know

Winding UpWinding up is the process of dissolving a business by selling off its assets and satisfying the creditors from the proceeds of the sale. A company may wind up for different reasons amongst which are insolvency, upon satisfaction of its objects under the Memorandum, but whatever the reasons, legal procedures need to be undertaken to minimize the risk to your personal assets, estate, and credit. Here are some considerations you would need to pay attention to to shut your business down legally.

Modes of Winding Up

You may liquidate your company and use the company assets to pay off its debts, any money left goes to shareholders.

Voluntary winding up which can either be;

1. Member’s voluntary liquidation – this is for a solvent company (can pay its debts) initiated by the company members.

2. Creditors’ voluntary liquidation – this is for an insolvent company (can’t pay its debts) initiated by members of the company after meeting the creditors of the company.

Liquidation of a company with the supervision of court.

Compulsory Liquidation – Liquidation by court.

Evidence of payments

Note; All Financial Institutions are governed by the Central Bank- Bank of Uganda and initiation of voluntary winding up should be by the approval of the Central Bank.. See provisions of the Financial Institutions Act, 2004; Sections 97 and 98.

Completion Of Liquidation

The Liquidation of a company shall be complete when the liquidator delivers to the official receiver a final report and final accounts of the liquidation and a statement indicating that;

1. All known assets have been disclaimed, realized or distributed;

2. All proceeds of realization have been distributed; and

3. In the opinion of the liquidator, the company should be removed from the register.On delivering to the official receiver the documents above, the liquidator ceases to hold office.

What The Liquidator Does

The fundamental duties of a liquidator under Section 99 of the Insolvency Act are to take in a reasonable and expeditious manner, all steps necessary to;

1. Collect;

2. Realize as advantageously as reasonably possible; and

3. Distribute

The assets or the proceeds of the assets of the company.The liquidator,

Gives notice of his appointment in the gazette and newspaper of wide circulation in Uganda. Form 12 Insolvency Regulations

Files a statement of affairs of the company. Form 20 Insolvency Regulations.

Files reports in relation to the liquidation process and gives public notice of availability of the reports in a newspaper of wide circulation and delivers copies to the Official Receiver. 

Sells and distributes the assets or the proceeds of the assets of the company to the creditors.

Registers his or her interest in all land and other assets belonging to the company.

Keeps company money separate from other money held by or under the control of the liquidator.

Keeps full accounts and other records of all transactions relating to the liquidation.

Retains the accounts and records of the liquidation and of the company for not less than six years after the liquidation ends.

Permits those accounts and records and the accounts and records of the company, to be inspected.

Holds meetings with the members of the company.

Settles legal disputes or outstanding contracts.

Gets the company struck off from the register.

REPORTS AND NOTICES BY THE LIQUIDATOR.

What the reports entail.Liquidator’s preliminary report.

1. the state of the company’s affairs,

2. proposals for conducting the liquidation

3. the estimated date of its completion

4.the right of any creditor or shareholder to require the liquidator to call a creditors’ meeting

Liquidator’s interim reports1. The conduct of the liquidation during the preceding six months period.

2. The liquidator’s further proposals for the completion of the liquidation.Liquidator’s final report1. The liquidator shall prepare an account of the liquidation showing how the liquidation was conducted and how the property of the company was disposed of.

2. Final accounts and statement.The grounds on which a creditor or shareholder may object to the removal of the company from the register under the Companies Act.

Effects Of Liquidation

1. A company shall from the commencement of voluntary liquidation, cease to carry on business, except so far as may be required for the beneficial liquidation of the company.

2. Subject to the above provision, the corporate status and powers of the company shall, notwithstanding anything contrary in its articles, continue until dissolved.

3. Any transfers of shares, not being a transfer made to or with the sanction of the liquidator and any alteration in the status of the members of the company, made after the commencement of the voluntary liquidation is void.

What happens to the Director?

When a liquidator is appointed, the directors;

1. No longer control the affairs of the company except if it is permitted by court.

2. Cannot act on behalf of the company.If you are a director you must;

1. Disclose fully and truthfully to the liquidator all the property of the company and details of the disposal of any property by the company including property disposed of in the ordinary course of business;

2. Deliver all property of the company in or under their custody or control to the liquidator.

3. Appear to the liquidator for questioning if and when he sees fit.

BENEFITS OF WINDING UP A BUSINESS

What are the benefits of winding up a business/company?

a) The legal obligations imposed on the company will immediately cease e.g The obligation to file annual returns with URSB and tax returns with URA will immediately cease.

b) The company enjoys a sufficient degree of protection against execution or other legal processes.

c) Protects the interests of creditors.

d) The company is struck off the Register.

The company may acquire a new lease of life through business rescue mechanisms such as administrative receivership or administration.

Individual Insolvency/Bankruptcy

This is a process by which an insolvent is adjudged bankrupt and his or her assets are administered by a trustee in bankruptcy for the benefit of his or her creditors.There are two ways of commencing individual insolvency proceedings;

a) Debtors Petition for Bankruptcy; where the debtor petitions court for a bankruptcy order by reason of his inability to pay his debts. The petition shall be in Form 2 in schedule 1 of the Insolvency regulations.

b) Creditors petition for Bankruptcy; where a creditor petitions court to make a bankruptcy order in respect of the debtor where he /she fails to satisfy a statutory demand.

Ahimbisibwe Innocent Benjamin

Africa Legal Award Laurette