THE NBC LTD VS MOHAMED TRANS LTD CONSOLIDATED COMM CAUSE NO

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION)

AT PAR ES SALAAM CONSOLIDATED COMMERCIAL CAUSES NO. 320 & 321 OF 2015

THE NATIONAL BANK OF COMMERCE LIMITED.............................................................. 1st PETITIONER

COMMERCIAL BANK OF AFRICA TANZANIA LIMITED.........................................2nd PETITIONER

VERSUS MOHAMED TRANS LIMITED....................... 1st RESPONDENT PAUL JUSTINE MGAYA................................ 2XI) RESPONDENT

RULING Mansoor, J: Date of RULING- 8th APRIL 2016 The 1st and 2nd Petitioners in the two consolidated petitions are the creditors to Mohamed Trans Limited, a company which was put under the Administration Order by the Court on 8th June 2015 through Misc. Commercial Cause No. 121 of 2015 appointing one Paul Justine Mgaya as the Administrator. The Petitioners are now seeking for discharge of the Administration Order, and they have petitioned under section 265 (a) and (b), section 266 (1) (d) of the Companies Act, Cap 212 R:E 2002. Against the petitions, the Respondents have taken three points of preliminary objections, namely: 1. That the commencement and or filing of the petition was done without either the consent of the Administrator or leave of the Honourable Court hence contravening section 250(3) (d) of the Companies Act, Act No. 12 of 2002; 2. The petition is not verified by or accompanied with any affidavit and neither does it contain a prayer clause 2| I stating precisely the reliefs that the petitioner is seeking from the court and under which provision, and 3. Section 266 (1) (d) cited on the petition is non-existent in the Companies Act, Act No. 12 of 2002. During the hearing of the preliminary objections, the Counsel for the respondents decided to abandon the second objection. In determining the first objection, I would say that Part VII, chapter II of the Companies

Act, Cap 212 R: E 2002 establishes a system of voluntary administration, whereby administrators are appointed by a resolution of the board of the company. The Board may appoint an administrator in circumstances where the company is, or will become at some future time, insolvent. In certain circumstances, a liquidator or secured creditor of an insolvent company may elect to appoint an administrator. Once appointed, the administrator must prepare a report containing recommendations as to whether the company should be returned to the control of the directors, wound up or execute a deed of company arrangement. Administrators are required to be registered liquidators, and by virtue of their appointment have broad powers to deal with company property. Directors of the company are prohibited from acting in their capacity as directors for the duration of the administration. The appointment of an administrator "freezes" any legal proceedings (on foot or anticipated) against the company, and control of the company is given entirely to the administrator, and this is the effect of administration order as provided in section 250 of the Companies Act, it provides: 250.-(I) on the making of an administration order- (a) Any petition for the winding up of the company shall be dismissed, and (b) Any administrative receiver of the company shall vacate office. 4| Pag (2) Where an administration

order has been made, any receiver of part of the company's property shall vacate office on being required to do so by the administrator. (3) During the period for which an administration order is in force: (a) No resolution may be passed or order made for the winding up of the company; (b) No administrative receiver of the company may be appointed; (c) no other steps may be taken to enforce any security over the company's property, or to repossess goods in the company's possession under any hire-purchase agreement, except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as the court may impose; and (d) No other proceedings and no execution or other legal process may be commenced or continued, and no distress may be levied, against the company or its property except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as aforesaid. The first objection is centred on the provisions of Section 250 (3) (d) of the Companies Act, that when the Administration order has been made no proceedings or legal proceedings may be commenced or continued against the company or its property except with the consent of the administrator or the leave of the Court. Now the question that this Court needs to determine is whether a petition under Section 265 of the

Companies Act for the discharge of the administration order also requires leave of the Court or a consent of the administrator. Section 265 provides as follows: Section 265 Protection of interests of creditors 6| 265. At any time when an administration order is in force, a creditor or member of the company may apply to the court by petition for an order under this section on the ground that the company's affairs, business and property are being or have been managed by the administrator in a manner which is unfairly prejudicial to the interests of its creditors or members generally, or of some part of its creditors or members (including at least himself), or (b) That any actual or proposed act or omission of the administrator is or would be so prejudicial. Under Section 256 of the Companies Act provides that the only person who can apply to set aside or vary the administration order is the administrator himself; while it may ’ be true that under that section the only person competent to apply to the court under section 256 of the Act is the Administrator, section 265 provides that a creditor aggrieved by an administration order could apply to the court 7| Pa ac to have the order rescinded on the ground that it was an order that ought not to have been made. The right given under Section 265 of the Companies Act is not independent of the provisions of Section 250 of the Act as the

petition made under Section 265 is a legal proceedings not exempted from the requirements of section 250 of the Act. In Cornhill Insurance Pic vs Cornhill Financial Services Limited /1992)BCC 818 the Court of Appeal of England held that a creditor who was aggrieved by the administration order which was unfairly prejudicial to it and accordingly ought not to have been made could invoke the jurisdiction of the Court under IR 1986 r7.47 to have the order rescinded”. As I have said hereinabove, this right however does not fall outside the ambits of the definition of any legal proceedings mentioned under section 250 (3) (d) of the Act, as these proceedings are also the proceedings commenced after the making of the administration order. 8|P If the complaint by the creditor is based on a breach of a duty in the conduct of the administration, a claim can be brought by the creditors under section 265 of the Act to have the administration order rescinded, however leave of the court is required before the creditor can bring a petition in court for the orders under Section 265 of the Act. Section 250 requires the creditor to seek leave of the court to commence legal proceedings under section 265 of the Act in order to determine whether the Administrator has breached its duties or has violated any of the duties under the Act. In the case of Air Ecosse Ltd vs Civil Aviation Authority (1987)

3BCC 492, the Court in England held that “the term proceedings in section 11 (3) of the England Companies Act (in pari material with our Section 250 of the Tanzania Companies Act), was confined in its scope to the activities of the company’s creditors in seeking to enforce their debts and did not extend to quasi-judicial and extra judicial proceedings such as an application made by a competitor of the company for the revocation of an aviation licence.” In another case of Carr vs British International Helicopters Ltd (1993) BCC 855 it has been held that “leave is required by an employee to an industrial tribunal complaining that he had been unfairly selected to redundancy.” Therefore this section 250 is wide and covers all legal proceedings against the company to which an administration order has been made. This sections spells out the full details of the restrictions on the enforcement of claims and securities against the company which apply once the administration order becomes operative, and a petition under section 265 by the creditors is of no exception. It can only be invoked with the leave of the court. Section 250 (3) (d), however, does not affect the substantive rights of creditors. It concerns merely with procedure. “It imposes moratorium on the enforcement of creditor’s rights but does not destroy those rights. The legal right of the creditor or security holder to

enforce his security and the causes of action based on those rights remain vested in the creditors. If the creditor seeks and obtains leave of the court to 10 I enforce his rights.” (Barclays Mercantile Business Finance Ltd vs Sibec development Ltd (Re Sibec Development Ltd) 1 WLR 1253. Thus the 1st objection is sustained, and the petition is struck out for want of leave of the court to file it. Costs is granted to the Respondents. DATED at DAR ES SALAAM this 8™ day of APRIL, 2016

MANSOOR

JUDGE 08th APRIL 2016 11 | P a g e