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THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT
KAMPALA
(COMMERCIAL COURT DIVISION)
IN THE MATTER OF THE VOLUNTARY WINDING UP AND LIQUIDATION
OF AFRICAN TEXTILE MILL LIMITED
HCT-00-CC-CI- 20 OF
2005
[RELATED TO HCT-00-CC-CS-0104-2002 AND
HCT-00-CC-CS-0257-2005]
AFRICAN TEXTILE MILL LIMITED
(IN LIQUIDATION)
::::::::::::::::::::::::::: APPLICANT
VERSUS
CO-OPERATIVE BANK LIMITED
(IN LIQUIDATION)
:::::::::::::::::::::::::::::: RESPONDENT
BEFORE: THE
HONOURABLE MR. JUSTICE YOROKAMU BAMWINE
R U L I N G
:
This is an application under sections 229, 301(1), 305 and 308 of
the Companies Act, Cap 110 and other enabling laws. The Applicant
is seeking
determination of some questions arising from the winding up. The liquidator
wants to know, for instance, whether it is
lawful and justifiable for the
Respondent to enforce its mortgage during the liquidation of the Applicant
company and whether or
not it is lawful for the Respondent, having submitted to
the jurisdiction of Court in the civil suits to which this application relates
can enforce its rights under the mortgage in respect of the mortgaged
property.
From the records, the suit property was mortgaged to the
Respondent under 3 registered instruments for a sum of Shs.1,200,000,000-.
The
Applicant defaulted on its repayment obligations. The Applicant is said to be
indebted to the Respondent in the sum of Shs.1,323,401,196-.
The Respondent has
now taken steps in accordance with the mortgage instruments to realise its
security. It is now in possession.
From the pleadings, each side has
filed its own questions for determination. This was not necessary since the
Applicant is the one
desirous of being guided by this Court. The Respondent
could still have been heard on the matter without setting its own issues
and
seeking to answer them. For the sake of orderliness, I will dispose of the
matter basing myself on the concerns raised by the
Applicant. I believe this
will also directly or indirectly answer most of the concerns raised by the
Respondent. Needless to say,
since the Respondent has raised a preliminary
point of law, it ought to take centre stage first.
The point of law
relates to the propriety of these proceedings. The action is brought, among
other laws, under the provisions of
S.305 of the Companies Act. It
provides:
“(1). The liquidator or any contributory or creditor may apply to the Court to determine any question arising in the winding up of a company, or to exercise as respects the enforcing of calls or any other matter, all or any of the powers which the Court might exercise if the company were being wound up by the Court.”
There is no doubt that the person
seeking guidance herein is the liquidator. The liquidator is one CLIVE MUTISO
and yet the Applicant
herein is AFRICAN TEXTILE MILL LTD (ATM) IN LIQUIDATION.
The section applies to the liquidator, any contributory or creditor. The
Applicant is none of the above.
Mr. Karugaba has submitted that a
distinction should be made between actions properly belonging to the company and
those that can
be brought by the liquidator. This submission cannot be
assailed. In as far as Court is concerned, ATML is in liquidation. It
has
technically ceased to carry on any business. Its fate lies in the hands of the
liquidator who must determine the way forward
in as far as the winding up
process goes. In the process, he has encountered some issues relating to the
winding up process over
which he requires answers. This must be differentiated
say from a situation where the company itself is pursuing a legal right vested
in it. In such event the company uses its available legal resources and gets
the matter right or wrong. It is noteworthy that he
was appointed at an
extra-ordinary meeting of the members of the company. As such, he is not
regarded as an officer of the Court.
But under S.305 of the Companies Act, he
can access Court for guidance. Since the Applicant is neither the liquidator, a
contributory
or a creditor, I hold as I must that the action was not properly
brought.
This would ordinarily have brought the matter to the desired
end. However, trusting as I do that equity looks to the intent rather
than the
form and that equity will not suffer any wrong to be without a remedy, I will
proceed to address some of the concerns raised
by the Applicant.
From the
records, there has been a long battle between the Applicant and the Respondent
over the mortgaged property. It is evident
from the pleadings that the
Respondent is in possession and control of the suit property since 31/5/05.
That’s the status
quo.
From the pleadings also, the factory is
closed. The workers were sent home. It is immaterial as to who did so because
one of the
consequences of voluntary winding up is that it terminates contracts
of employment. Now if the company is closed, there is no business
to transact
other than the winding up process. And this brings me to the thrust of the
dispute between the parties, that is, whether
the Plaintiff as the mortgagee
should be restrained from exercising its contractual rights on account of the
winding up process.
On this point, I can do no better than re-echo the words of
the learned author, William James Gouch, Company Charges, 2nd Edn at
P. 949 on “Security Proprietory Interest.”
“As in
bankruptcy, a secured creditor in company liquidation can at his option
effectively stand outside the liquidation altogether
or come into the
liquidation and prove. The nature of the election of a secured creditor was
described in Food Controller –Vs- Cork [1923] AC 647 (at 670
– 671) by Lord Wrenbury:
‘The phrase “outside the
winding up” is an intelligible phrase if used, as it often is, with
reference to a secured
creditor, say a mortgagee. The mortgagee of a company in
liquidation is in a position to say “the mortgaged property is to
the
extent of the mortgage my property. It is immaterial to me whether my mortgagor
is winding up or not. I remain “outside
the winding up” and shall
enforce my rights as a mortgagee.”
This is to be contrasted with the
case in which a creditor prefers to assert a right, not as a mortgagee, but as a
creditor. He may
say, “I will prove in respect of my debt.” If so,
he comes into the winding up.”
I wouldn’t agree more with the
learned author.
From the records, the Respondent is doubly assured. It
can enforce its rights as a mortgagee as well as a Judgment creditor. In
my
view, its election to realise its security and discharge the secured debt out of
the sale proceeds as far as possible cannot be
faulted. The Applicant must come
to grasp with the reality if the company assets are to be protected from further
waste through
costly and unwarranted suits. It is the considered view of the
Court that it would be honourable for the liquidator to leave the
mortgagee to
realise the security as by law established. It appears that the liquidator
harbours the feeling that the Respondent
may not conduct the sale in the best
way possible. Such a feeling is natural but unwarranted. True, a morgagee is
not a trustee
of the power of sale for the mortgagor. Once the power has
accrued, the mortgagee is entitled to exercise it for his own purposes
whenever
he chooses to do so: Cuckmere Brick Co. Ltd –Vs- Mutual Finance Ltd
[1971] 2 All ER 633. But the law is not short of remedies if the mortgagee
messes it up. The sale must be a genuine one by the mortgagee to an independent
purchaser at a price honestly arrived at. The mortgagee is liable in damages to
the mortgagor for negligence either of the mortgagee
or his agent in connection
with the sale. He has a duty to take reasonable steps to obtain the proper
price in the interest of the
mortgagor.
In view of these legal
safeguards, the liquidator’s suspicions would be groundless. Having
stated so, I reiterate that normally,
when land is mortgaged, the mortgagor
remains in actual possession of the property until upon default when the
mortgagee finds it
necessary to enter into possession. The mortgagor retains
the legal fee simple in respect of the mortgaged premises and the mortgagee
takes a charge by way of a legal mortgage and in law he has the right to
possession.
It was so held in Mubiru –Vs- Uganda Credit &
Savings Bank [1978] HCB 109 and there is no reason for me to depart from
that position. This right must be exercised unequivocally by demand, notice to
tenants
or entry into the premises. This Court is satisfied that notice was
issued to the Applicant in 2002. It was still in force by the
time the
mortgagee took possession. Now that the mortgagee is in possession, the
liquidator would better work hand in hand with
the Respondent to reap maximum
advantage from the sale of the assets.
In short, it is lawful and
justifiable for the Respondent to enforce its mortgage during the liquidation of
the Applicant company.
It is also lawful for the Respondent, having submitted
to the jurisdiction of the Court in the 2 civil suits to which this application
relates, to enforce its rights under the mortgage in respect of the mortgaged
property. Put differently, the Respondent being a
secured creditor is entitled
to stand outside the winding up process and enforce its mortgage
rights.
Finally, it is the advice of this Court that the provisions by
which actions and other proceedings against a company may be stayed
in respect
of a compulsory winding up do not apply to a voluntary winding up, although the
Court has discretion to stay proceedings.
See COMPANY LAW IN UGANDA by D.J.
Bakibinga at p. 447.
There is no basis for the exercise of such
discretion in this case.
Accordingly, the Applicant is not entitled to
any of the reliefs claimed, both as a matter of procedure, having wrongly
instituted
the suit in the name of the company in liquidation, and as a matter
of law. Save for the guidance which I hope he will find useful,
I would dismiss
the application with costs to the Respondent. I do so.
Dated at Kampala
this 13th day of July, 2005.
Yorokamu Bamwine
J U D
G E
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