Amendments to Companies and Insolvency Laws in Uganda

New changes introduced to Companies and Insolvency Laws under the 2022 Amendment Acts

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Background

The corporate sector in Uganda is mainly regulated by the Companies Act 2012 and the Insolvency Act2011. Both legislation—with the companies’ law replaced the previous Companies Act Cap 110 (that dated to1923) and the insolvency law as the legislation on both corporate and individual insolvency—have not had any amendments since their enactment and both coming into force in 2013.

The amendments to the companies’ and insolvency laws were by way of amendment Bills tabled before Parliament on August 12, 2022 and were assented to by the President on September 7, 2022 and, in effect, passed into law. The Companies (Amendment) Act 2022 amends the current 2012 Act to remove inconsistencies in the law, introduce flexibility in its implementation and streamline operations of the companies in Uganda. The rationale for the amendment was that there were inadequate provisions in the 2012 Act on the transparency and disclosure of beneficial owners’ information and threshold (this is the subject of a separate ALP Alert dated September 7, 2022). The 2012 Act also had inadequate provisions on, among others, the striking off of defunct companies on the register, absence of a time frame for when a dissolved company name can be made available for reuse, and inadequate provisions for deregistration of a company.

On the other hand, the Insolvency (Amendment) Act2022 amends the 2011 Act on the premise that the registration services bureau(URSB) has had a challenge of addressing the administrative and operational shortcomings in the law and meeting international standards. The 2011 Act further had inadequate provisions as well as contradictions that created challenges in implementing the law and, as such, the 2022 amendments sought to cure these defects in the law.

New changes introduced by the 2022 Amendment Acts.

Companies (Amendment) Act 2022.

The amendments to the companies’ law are as follows:

(a) Incorporation: The Act changes the current form of registration and replaces it with a new precise but comprehensive form, i.e. Company Form 1 which contains details of name of company, proposed address, postal address, nominal capital, details of subscribers, and nature of articles of association. The rationale is to make the process of incorporation quick, easy and cheap.

(b) Discretion to use a Memorandum of Association: The Act empowers any person registering a company to have the discretion to use a memorandum of association as a form of incorporation of a company. The registration of a memorandum of association is an optional requirement. This is because the amendment provides for a mandatory requirement for a person who intends to incorporate a company to fill in particulars contained in the registration form (Company Form 1) rendering the memorandum of association redundant since it only provides for the objectives of the company as other details are covered in the form.

(c) Default Code of Corporate Governance: The Act makes the code of corporate governance in Table F the default code of corporate governance for every public company that does not comply with any corporate governance provisions or code prescribed under any other law.

(d) Meaning of a public company: The meaning of a public company is amended to mean a company that is not a private and which has at least seven shareholders at the time of incorporation. This provision would thus make a statutory minimum of shareholders for a public company as seven (7).

(e) Change from company limited by guarantee to company limited by shares: The Act introduces a new provision that allows a company which is registered as limited by guarantee to be re-registered as company limited by shares if a special resolution is passed on that basis. It should however be noted that this amendment replaces Section 23 of the Act (that provided for re-registration of an unlimited company as a limited company). In effect, this means that there shall be no provision allowing re-registration from unlimited to limited companies.

(f) Notice of cessation by foreign companies: The Act introduces a provision that a foreign company that intends to cease business in Uganda shall publish the notice of cessation in the newspaper of wide circulation specifying that the company is solvent and intends to cease business after 30 days from date of publication.

(g) Company registrar as an accountable person: The Act empowers the registrar, with the duty as an accountable person, to maintain a register of beneficial owners, to verify identity of beneficial owners and to enforce provisions of, among others, the anti-money laundering law.

(h) Beneficial ownership: This is addressed in a separate ALP Alert (https://www.alp-ea.com/post/anti-money-laundering-and-combating-the-financing-of-terrorism-in-uganda).

(I) Defunct companies: The Act gives powers to the registrar to strike off defunct companies from the register either on his or her own accord or at the request of the company. This is because there are several dormant or defunct companies on the register, which is a challenge to the URSB, as it restricts the use of the names by prospective companies and, in certain instances, aiding fraud.

(j) Power of registrar in voluntary winding up: The Act gives the registrar the powers to strike off a company from the register without applying the provisions of the Insolvency Act, 2011 where the company passes a resolution for voluntary winding up and the registrar is satisfied that the company has no assets or liabilities.

(k) Repeal of issuance of share warrants: The Act repeals all provisions allowing the issuance of share warrants to bearer because it does not allow for transparency and disclosure of information which allows tax payers to conceal information from the registration services bureau (URSB) and tax authority(URA).

(l) Repeal of exemption of common wealth countries from filing annual returns: The Act repeals the exemption of section 256 which exempts companies incorporated in commonwealth countries from filing returns, balance sheets, and profit and loss accounts with the Registrar of companies. This means that all foreign companies shall file annual returns at the URSB.

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Insolvency (Amendment) Act 2022

The amendments to the insolvency law are as follows:

(a) Cross border insolvency: The Act repeals the provisions of Part IX relating to cross border insolvency and reciprocal arrangements. The rationale is make the Act compliant with the UNCITRAL Model Law on cross border insolvency, the World Bank recommendations on the ease of doing business. As such the Act eliminates the hefty procedures and lowers the cost of doing cross border business.

(b) Unlawful dealing with assets: The Act creates an offence for a person who conceals, disposes of, or creates a charge on the property or removes any part of it with the intention of depriving or delaying creditor’s claims within two (2) years before the commencement of insolvency proceedings.

(c) Reduction of years of bankruptcy restrictions: The Act reduces the period in respect of restrictions on a discharged bankrupt from 5 to 2 years. The rationale is to reduce stigmatisation and encourage rehabilitation of bankrupts.

(d) Flow of documentation between the Official Receiver and the Registrar of Titles: The Act amends the process ofinsolvency to allow all documents or orders to be served upon the registrar within seven (7) days after making of any such order or decision. This is meant to ensure a seamless flow of documentation between the Official Receiver and the Registrar of Companies.

(e) Post-arrangement financing and post-administration financing: The Act allows insolvent persons, with the consent of the creditors and with the approval of court, to obtain or borrow finances and grant security over the property of the debtor for purposes of implementing an arrangement or administration deed. However, the Act provides that such financing shall not exceed the value of debtors’ unnumbered assets at the time of arrangement or assignment.

(f) Interim protective order by creditor: The Act grants rights to a creditor to apply for an interim protective order.

(g) Administration order: The Act extends the process of administration by providing for an administration order to create clear evidence of the commencement of administration. The Act provides that after an administration deed is executed, it shall be filed in court who shall issue an administration order.

(h) Access to data: The Act grants persons the right to access information or data in possession of a trustee, receiver, liquidator, administrator or supervisor in order to promote transparency and accountability in insolvency proceedings.

(i) Additional qualifications for insolvency practitioners: The Act confers powers on the Minister to prescribe additional qualifications for a person to be appointed or act as an insolvency practitioner.

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Conclusion

The new amendments are a welcome addition to the corporate sector as they address the current gaps in the existing laws and should transform company registration and management procedures as well as insolvency of companies and individuals in Uganda.