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On the 16th day of July 2024, Hon. Justice Stephen Mubiru of the High Court of Uganda’s Commercial Division delivered a controversial ruling reviving Crane Autos Limited. This company had been dissolved following liquidation to allow the Uganda Revenue Authority (URA) to collect outstanding taxes. This ruling has stirred significant debate within the legal fraternity and the business community.
The Liquidator of Crane Autos Ltd, Mr. Isaac Ssali Mugerwa of M/s Bluebell Legal Advocates and the other respondents, represented by their Counsel, Mr. Nelson Nerima of M/s Nambale Nerima & Co. Advocates have already filed a Notice to Appeal this Ruling. The Liquidator has also made an application to the High Court to stay execution and further proceedings related to the affairs of Crane Autos Ltd including the pending judgment intended to lift the corporate veil of the Respondents in this case.
The respondents are Kampala Properties Limited, Punjani Motors Limited, East African Motor Supplies Limited, Autotune And Engineering Limited And The Official Receiver of Crane Autos Limited.
What is this case about?
In June 2022, Crane Autos Limited filed returns with URA declaring a tax liability of UGX 603,852,927/= The directors of the company requested to pay the tax in instalments and indeed paid UGX 49,740,000/= towards the debt. Upon review of the returns, URA requested additional information which was not provided in time. URA refused to provide additional time to the directors to furnish documents and made an additional assessment of UGX 19,525,434,879/= bringing the total liability to UGX 20,129,287,806/=. The directors testified in court that while the company could have objected to this additional assessment, it opted to wind up because there is an existing legal requirement that anyone who seeks review of a tax assessed by URA must pay 30% of the tax before seeking audience with the Tax Appeals Tribunal.
According to the directors, the company that was already strained financially had only one option left⏤ winding up. This decision was made on the 14th day of March 2023 and Mr. Isaac Ssali Mugerwa of Bluebell Legal Advocates was appointed as its liquidator. The liquidation was commenced as a voluntary process by the shareholders of Crane Autos Ltd. It was later converted by the Liquidator to a creditors’ liquidation (in law) following protests by URA and advice from the Official Receiver.
During the liquidation process, URA sought to recover the unpaid taxes by persuading the liquidator to track the assets of suspected associated companies. The liquidator, after making inquiries, did not find evidence of association as provided for in the Insolvency Law and proceeded to wind up the Company. It appears that URA did not challenge the liquidator’s decision provided for in the Law and sat back and waited for the Liquidation to come to a close. In Law, the liquidation process is completed when the liquidator files his final returns. For Crane Autos the liquidator filed his final return on the 1st day of December 2023.
Section 77(7) of the Insolvency Act states that ‘On the expiration of three months from the registration of the returns, the company shall be taken to be dissolved, unless the court on the application of the liquidator or of any other person who appears to the court to have an interest in the company, makes an order deferring the date on which the dissolution of the company is to take effect, to a time as the court may think fit’.
The Court never deferred the dissolution date when URA applied because the filing was made ‘last minute’ and the schedules of the Court did not allow it. Consequently, 5 months later, in this controversial ruling delivered by Justice Mubiru, the Court instead revoked the certificate of dissolution, re-awakening the dissolved/dead company in the public interest to aid URA collect taxes.
According to the Liquidator and Counsel for the Respondents, URA’s challenge was made rather too late “after the burial of Crane Autos Limited” which prejudices the interests of third parties that had taken it to be “deceased” following closure from a legal process. URA, despite being aware of the liquidation process, did not act within the timeframes specified within the Insolvency Laws of Uganda. The judge’s decision to “toll” the deadline after it had long passed to create opportunities for URA, deviates from established Ugandan jurisprudence, which does not condone dilatory conduct. URA had many opportunities to challenge the liquidation process within the timelines specified in the Law. Mr. Mugerwa and Mr. Nerima, both reputable senior insolvency practitioners advanced an argument that this rationale undermines the public’s faith in the corporate structure and the legal tenets that govern it and that the court’s intervention to reverse this process would set a dangerous precedent, suggesting that liquidation can be undone at any time thereby destabilizing the certainty that businesses rely on when opting for winding up.
Lazarus! Lazarus! Wake up!
According to the appellants, miracles similar to the one performed by the ‘biblical Jesus Christ’ should not be performed in jurisprudence where parliament has already enacted statutes. A judge should not become our parliament. They maintain that from a business perspective, the ability of a court to resurrect a company that has been lawfully liquidated is troubling.
In a mailed statement to CEO East Africa Magazine, Isaac Ssali Mugerwa the liquidator, had this to say:
“…As a liquidator, I must respect the decision of the Court. Nevertheless, my duty is to serve the interests of all stakeholders in the liquidation process. Therefore, I am interested in testing this decision in an appellate process for the good of this country. One of the professional duties of an advocate is to the public. As an insolvency practitioner, I am interested in the development of our insolvency laws. This decision while honourable, places an onerous burden on liquidators and the official receiver. We must also note that businesses choose to liquidate for various reasons, including insolvency and the desire to cease operations decently. If such decisions can be reversed at any moment after dissolution, it creates an environment of uncertainty and unpredictability. This undermines the confidence of business owners and investors in the legal processes meant to protect their rights and provide closure…”
He added:
“The ruling also implies that URA is above the law, receiving preferential treatment compared to other Ugandan entities. URA can always sit back and wait for the liquidation process to end and then swing into action. This is contrary to the principle that no entity, including government agencies, is above the law. The court’s leniency towards URA’s failure to act within the legal timeframe condones behaviour that Ugandan jurisprudence has historically found unacceptable. My appeal is premised on my consideration that the broader implications of this judgment are concerning. The decision sends a message that the legal process can be manipulated, eroding trust in the corporate and legal systems. If public interest is used as a blanket justification for deviating from established legal principles, it risks undermining the rule of law. Obviously, we should also not condone tax evasion for the good of our country. However, during insolvency, claims should be prosecuted promptly to allow closure. The integrity of the corporate structure depends on the adherence to legal procedures and timelines, ensuring that all parties are treated equitably…”
Considering the ongoing debate on this decision, there is no doubt that Justice Mubiru’s ruling in favour of URA, allowing the resurrection of Crane Autos Limited, raises serious legal questions and that many Ugandans including legal academic scholars, the business community and the tax authority will look forward to the decision of the Court of Appeal.