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THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA
(COMMERCIAL DIVISION)


IN THE MATTER OF THE WINDING UP OF MASTERMIND TOBACCO (U) LTD

MISC. APPLICATION NO. 708 OF 2002
(Arising from Companies Cause No. 18 of 2002)


TOBACCO & COMMODITY TRADERS
INTERNATIONAL INCORPORATED ::::::::::::::::::::::::::::APPLICANT/PETITIONER


VERSUS
MASTERMIND TOBACCO LIMITED ::::::::::::::::::::::::::::::::::::::::::::RESPONDENT


BEFORE : THE HON. MR. JUSTICE R.O. OKUMU WENGI

ORDER:

This is an application brought under Sections 225(1) and 238 of the Companies Act and rules 5(2), 7(1) and (2), and 27 of the Winding Up rules. It seeks an order for the appointment of an Interim Liquidator for the company. It is supported by the affidavits of Thabit Katunda and that of Nicholas Watson. The grounds for the application are that winding up proceedings have been brought and are pending in this court. Secondly that the Revenue has proceeded on a distress to recover taxes from the company to the tune of (U) Shs. 2.5 billion. That further that the company assets are in jeopardy from sale and wastage.

The Chamber Summons is however defective in that the title does not indicate who the applicant is though it turned out to be M/s Tobacco & Commodity Traders International Incorporated. The application is opposed by the Company which filed affidavits of Franscisco Mugabe and those of Bernard Rubia. In the course of hearing it also emerged that the company is engaged in three or four Civil Suits either brought by it or against it claiming several reliefs. These civil suits are still pending in court as is the winding Petition.

Mr. Kabiito Karamagi who argued this application submitted at length to say that under the law all he had to do was to show that the pending petition presents a prima facie case for winding up of the company. One main issue is that it is sought to wind up the Company on account of its failure so far to pay or otherwise compound a debt subject of the winding up petition. Secondly there is the URA debt in unpaid taxes. Thirdly it is his argument that the company became embroiled in an internal wrangle causing its Company Secretary the deponent of the affidavit in support of this application Thabit Katunda and one Ayabatwa Kajugiro to leave its management. That as a result the company is in a state of a perilous management that is not operating in the interest of the company or its creditors. Counsel argued that a internal debacle such as this one is sufficient ground to order a provisional Liquidator of a company.

To oppose the application Mr. Apollo Makubuya suggested that the court’s power be exercised very cautiously in view of the consequences of such order on a company. He contended that the Shs. 1.6 million debt claimed against the company is not conclusive as the debt is denied. He submitted that as the money is not proved to have been disbursed or received by the company no order should be made. He also challenged the deed of assignment which is the basis of the claim that the company is indebted. Counsel argued that there was no notice of the assignment a matter that is fatal to the company’s assets was not in jeopardy. He further contended that the URA distress was not maintainable during the pendency of a winding up petition.

Counsel then went on to say that the company is a large tax payer contrary to what counsel for the petitioner was contending. He submitted from the Bar that his client had paid Shs. 3.6 billion in taxes to URA between February and October 2002 alone. He further argued that the company pays its workforce, its social security contributions and maintains a good crowd of tobacco out grower farmers in rural Hoima, Lira and West Nile. He concluded that the company is not such a write off and that a provisional liquidator would only derail it in Industry adversely affecting its revenue contributions. Counsel cautioned court against the use of an Interim Liquidation described by McPhersons Law of Company Liquidation as the “Nuclear Weapon of the Company Court.” He concluded by entreating court not to put the company under an interim liquidation order. He also said no prima facie case had been made for such order he submitted.

I will first deal with the Uganda Revenue Authority debt. According to the affidavit of Thabit Katunda described as shareholder and Board Secretary of the very company under consideration, the company has not paid taxes to the tune of Shs. 2.5 billion to Uganda Revenue Authority, which has levied distress dated 30/10/2002 issued by Justin Zake of Uganda Revenue Authority, the company owes taxes in the sum of Shs. 2,520,761,242/=. He issued orders to both Kabu auctioneers and Nile and Uganda Commercial Banks for this tax collection. However by the letters in November 2002 the URA suspended the execution of the distress warrants. This followed intervention by the Hon., Minister for Finance, Planning and Economic Development ordering the suspension. In his letter to the Commissioner General the Minister wrote:—

Re: Demand of arrears of Exercise Duty on Cutrag Tobacco from Mastermind Tobacco (U) Ltd.

I have been informed by Mastermind Tobacco (U) Ltd that you have reclassified Cutrag Tobacco. As a result the exercise duty which the company should have paid is 130% and not the 10% it paid.

I am requesting you to stay enforcement action as I study this case. This is because this case has ramifications on treatment of investments, application of exercise duty on a raw material and on unfinished product and whether a classification to which we acquired should be charged to the detriment of an impostor.”

From the above it is clear that there is a tax enforcement which has been stayed not cancelled. This court was also not told of a pending appeal before the Tax Appeals Tribunal and for all intents and purposes the tax and distress proceedings are stayed but not reversed. It would therefore appear that a prima fade case of a tax liability exists against the company and I am able to conclude to in the absence of a remission or exemption of the tax by the Minister or waiver by the Uganda Revenue Authority.

On the debt claimed against the company I have also been able to see that such a debt has been claimed. The company had not conclusively settled or compounded it and but for a determination of the actual claim the debt seems to be there and has not been settled. I would say that these two situations tend to suggest that a prima facie case for the eventual winding up of the company exists and has been sufficiently made out to enable the application for appointment of an interim Liquidator to be ordered. In the absence of the company’s audited Accounts to establish a margin of solvency and to counter the fact that the company has not but for certain factors failed to meet its obligations, I am of the view that such prima fade case has been made out. Further the Revenue angle tends to suggest a strong public interest as does the existence of an otherwise gullible out grower peasant population. It is therefore also of interest to the company that its assets be protected. Re: Union Accident Insurance Company Limited (1972) 1 All ER 1105.

There has been some evidence that the company is experiencing numerous internal difficulties as exemplified from it of its shareholders and officers who have perhaps in rivalry sought out to petition for winding up. Such internally disruptive situations suggest that conditions for appointment of an interim Liquidator are present. See Andrea Lybeat vs Commet Holdings (U) Ltd. Company Cause No. 11 of 1997 (unreported). In so agreeing I must order that the Official Receiver is appointed Interim Liquidator of the Company pending winding up proceedings being concluded, on production of Official Receivers Certificate under rule 28 of the Companies Act, that the requested sum and a further sum of Shs. 5,000,000/= (Five million) has been deposited as fees and expenses that may be incurred by the Interim Liquidator.

R.O. OKUMU WENGI
JUDGE
5/3/2003.


5/3/2003:- Kabiito Karamagi for Applicant
Obonyo Rochard for Respondent
Mutegeya Milton Court Clerk

Court:- Ruling delivered in open court in the presence of the above persons.

D/ REGISTRAR
5/3/2003.