MISC

IN THE HIGH COURT OF THE UNITED REPUBLIC OF TANZANIA (COMMERCIAL DIVISION)

AT ARUSHA MISC. COMMERCIAL CAUSE NO. 11846 OF 2024 IN THE MATTER OF THE COMPANIES ACT (CAP 212) R.E 2019

AND

IN THE MATTER OF PETITION FOR WINDING UP OF

THE AFRICAN WALKING COMPANY LIMITED THE AFRICAN WALKING COMPANY LIMITED…………………..PETITIONER

RULING Date of Last Order: 23/05/2024 Date of Ruling 23/08/2024 GONZI, J. This is a petition brought under Section 279(1) (a), (d), and section 281 of the Companies Act, CAP 212 R.E 2019 seeking winding up of a Company. The prayers sought in the petition are: i. That the Petitioner be wound up by this Honourable Court. 1 ii. That Advocate Mosses Ebenezer of ES Kinabo & Co. Advocates be appointed as Liquidator. iii. That the assets of the Company be realized to pay off the debts of the Petitioner. iv. Such other orders as this Honourable Court shall deem fit. The Petition was brought under section 279(1)(a) and (d) of the Companies Act, CAP 212 of the Laws of Tanzania and was verified by an affidavit verifying the petition sworn by Mr. Paulo Sanare Laizer, Principal Officer of the Petitioner Company. The facts of the case, as per the Petition, are that the African Walking Company Limited was incorporated in Tanzania with its registered office at Ilboru Area, Arumeru District, within Arusha Region. It has a registered share capital of TZS. 5,000,000/= divided into 5,000 shares of TZS. 1,000 each. The grounds for seeking a winding-up order were itemized in the petition and I quote them verbatim as follows: i. “The petitioner's business suffered significantly from the COVID-19 pandemic, resulting in large debts, lack of business, and canceled bookings. 2 ii. The major overseas tour

agent providing clients to the petitioner passed away, further reducing business from abroad. iii. Directors Jonathan Pennington Ridge and Richard Jonathan Marsded, who were crucial to the company, left Tanzania during the pandemic, and their whereabouts are unknown. iv. The petitioner's business has deteriorated due to a lack of clients, resulting in substantial debts and financial instability. v. Attached are audited financial statements for 2020 and 2021 (Annexure "A-4"). vi. The petitioner owes TZS. 716,875,164.52 to the Tanzania Revenue Authority, as shown in the attached demand letter (Annexure "A-5"). vii. The High Court of Tanzania at Arusha ordered the petitioner to pay USD 358,236 and TZS. 20,000,000 to Karibu Africa Safaris Ltd (Civil Case No. 29 of 2019), with an application for execution filed due to non-compliance.( Attached are copies of the Judgment and Decree from the High Court of Tanzania at Arusha, along with the Application for Execution (Annexure "A-6").” It was stated further that, the petitioner, due to severe financial losses, passed a special resolution on July 30th, 2023 to petition the Court for the winding up of the company. The original special resolution was attached as Annexure "A-8" to the petition. Additionally, given the circumstances and 3 inability to pay debts or sustain operations, the petitioner believes that it is just and equitable to

wind up the company. Upon receiving the petition the Court ordered that the Registrar of Companies at BRELA and the Tanzania Revenue Authority (TRA) be officially served with the petition. The Court also ordered advertisement of the petition in accordance with Rule 99(1), (a) and (b) of the Companies (Insolvency) Rules of 2005. Therefore, on 16th of May 2024 the Petition was advertised so that anyone interested could appear at the hearing either to support or oppose the petition. The Petitioner’s learned advocate confirmed in Court that after publication of the Petition and effecting service thereof to TRA and BRELA they received notice of appearance from TRA. He informed the Court that the said TRA filed notice of appearance under Rule 104 of the Companies Insolvency Rules, 2005 and that they support the petition and further that they pray that legal procedures be complied with for the payment of their debt. It was stated that TRA is owed TZS 842, 405,886.88 by the African walking company Limited for unpaid taxes from 2006 to 2020 as determined by 2021 tax audit. 4 The Learned Counsel of the petitioner, Miss Juliana Lauwo, filed an affidavit of compliance with the Court orders in conformity with Rule 102 of the companies Insolvency Rules 2005. She swore that: i. “The petition was advertised in Mwananchi on 16 May 2024, page 21. ii. The petition was advertised in the Guardian

on 16th May 2024 page 5 iii. The petition was served to TRA on 16th May 2024 via EMS Postal services. iv. The petition was served to BRELA on 16th May 2024 via EMS postal services. “ The matter has been scheduled for mention on 23rd May 2024 for necessary orders where the hearing of the Petition was ordered to proceed by way of written submissions. In the written submissions the petitioner submitted that the Petitioner is a Limited Liability Company incorporated in 1998 whose business is in tourism industry. She submitted that the petitioner seeks an order of winding up under sections 279(1), (9) (a),(d) and 281 of the Companies Act, CAP 212 R.E 2002. She argued that the company requests winding up due to a special resolution and its inability to pay its debts in terms of section 281(1) 5 of the Companies Act. She submitted that under the section, a winding up petition may be presented to Court by the company, creditors (including contingent or prospective creditors), contributories, and administrator, or any combination of the parties. She submitted that in this case the petitioner has met all the legal requirements for the petition of winding up of the company to be allowed. She prayed for the Court to grant the orders prayed in the Petition. I have considered the Petition at hand in line with the applicable law. I will start with the issue of locus standi. As it was

submitted by the Learned Counsel for the Petitioner, a winding up petition may be presented to Court by the company, creditors (including contingent or prospective creditors), contributories, and administrator, or any combination of the parties. In this case the Petition has been presented by the Company itself which is the Petitioner but it is supported by a special resolution of Directors of the Petitioner Company rather than a special resolution of its members. This is a question that touches on locus standi. Locus standi is a rule of equity whose roots are entrenched into the jurisdiction of the Court thereby affecting its competency to entertain a matter before it. In Peter Mpalanzi vs 6 Christina Mbaruku (Civil Appeal 153 of 2019) [2021] TZCA 510 (23 September 2021), it was held that: “Locus standi is a rule of equity that a person cannot maintain a suit or action unless he has an interest in the subject matter. Unless a person stands in a sufficient close relation to the subject matter so as to give a right which requires protection or infringement of which he brings the action, he cannot sue on it- see Godbless Lema v. Mussa Hamis Mkanga and 2 Others, Civil Appeal No. 47 of 2012 (unreported). Further, locus standi is a point of law rooted into jurisdiction. It is for that reason that it must be considered by a Court at the earliest opportunity or once it is raised.

“(Emphasis supplied) From the arguments by the learned counsel for the petitioner, I have noted that there was some sort of generalization of the winding up procedures and processes without paying regard to the nature of the petitioner who actually brought the petition at hand. It happens that the Petition was brought under the provisions of section 279 (1) and 281(1) of the Companies Act, CAP 212 and is seeking a compulsory winding up order by the Court. Section 279(1) of the Companies Act, CAP 212 provides: 7 279.-(1) A company may be wound up by the Court if (a) The company has by special resolution resolved that the company be wound up by the Court; (b) The company does not commence its business within a year from its incorporation or suspends its business for a whole year; (c) The number of members falls below two; (d) The company is unable to pay its debts; (e) The Court is of the opinion that it is just and equitable that the company should be wound up. The locus standi to bring a petition for winding up of a company under section 279(1) of the Companies Act, CAP 212 is prescribed by section 281(1) thereof which provides that: 281.-(1) An application to the Court for the winding up of a company shall be by petition presented, subject to the provisions of this section, either by the company or by any 8 creditor or creditors (including any contingent or prospective

creditor or creditors), contributory or contributories, or by an administrator, or by all or any of those parties, together or separately: The statutory locus standi under the above provision was considered by this Court in the Matter of Winding up by the Court of "Mwananchi Insurance Company Limited” between Elias Masija Nyang'oro and Edna M. Nyang'oro Versus Mwananchi Insurance Company Limited, Misc. Civil Cause No. 21 of 2017, this Court as per Hon. Maige, J., (as he then was) held that: “This takes me to the issue of the locus standi of the petitioners to petition for winding up of the company. The instant petition is preferred under section 281 (1) of the Companies Act. Under the said provision, it is apparent that a petition for winding up of a company can be preferred by the company itself, creditors, administrator or contributories.” I understand that the words “the company itself” refers to the Members of the Company and not its Directors. A company may make a 9 petition for its winding up, when the members of the company have so resolved by passing a special resolution. Directors are not necessarily members of the Company. In the present case, the resident Directors who passed the Special Resolution for winding up of the Petitioner Company did not sit and pass resolution as “Members” of the Company in terms of Section 281(1) of the Companies Act, CAP 212. Do the

members of the Board of Directors also have locus standi under section 281 (1) of the Companies Act to present the petition for compulsory winding up of the company? My answer is that since it is the Company itself that is the Petitioner in this winding up petition, the resolution ought to have been passed by the Company itself, that is, by the Members of the Company. The special resolution for winding up of the Company could be passed by Directors of the company, while the petition for winding up was not being brought by the Directors rather by the company itself. If the petition for winding up was presented to Court by the Directors of the company (in their own names as Directors of the Company, not in the name of the Company), then the special resolution for winding up could be properly passed by the 10 Board of Directors of the Company. Directors are among the persons who are competent to pass the special resolution for winding up and present in Court a petition seeking the Court’s order for compulsory winding up of the company under any of the grounds stipulated under section 279(1) of the Companies Act, CAP 212. The locus standi of the directors to present a petition for winding up as such, stems from section 281(1) of the Companies Act, CAP 212 when read together with Rule 90(2) of the Companies (Insolvency) Rules 2005 made under the Companies Act CAP 212. Rule 90(2)

falls under Part VI of the Companies (Insolvency) Rules which applies to winding up by the Court. Rule 90(2) of the Companies (Insolvency) Rules 2005 provides that: “Except as provided under sub-rules (3) and (4) or by any particular Rule, the Rules shall apply whether the petition for winding up is presented by the company, the directors, one or more creditors, one or more contributories, the Minister, the Official receiver, or any person entitled under any enactment to present such a petition.” Rule 90(2) of the Companies (Insolvency) Rules, 2005 therefore is the basis for the locus standi of the Directors of the company, in their position 11 and their names as Directors, to present a petition for compulsory winding up by the Court. I should however, hasten to add before it becomes too late that, Rule 90(2) of the Insolvency Rules might be misleading if taken outside its proper context. Therefore, for clarity, a word or two must be said here about these powers and locus standi of directors of a company to pass a resolution and present a petition for Court’s order for compulsory winding up of the company they manage: (i) Where a compulsory winding up petition is presented by the directors, they must petition in their own names rather than in the name of the company; and, (ii) In the absence of a formal board resolution, the directors must act unanimously in presenting the

petition. (iii) However, if the majority of directors at a board meeting have resolved that the company should be wound up, an individual director in his own name, may present a petition separately. For the foregoing principles see the case of Re Instrumentation Electrical Services Ltd [1988] B.C.L.C. 550 which was quoted with approval by this Court (as per Hon.Sehel,J., as she then was) in Misc. Commercial Application No. 217 Of 2016 in the Matter of Dovetel (T) 12 Limited T/A Sasatel Tanzania (In Administration) and Dr. Peter Jonas Chitamu Versus Mary Bundala and First Seal Company Limited. The same was also followed in the case of Promotion of Rural Initiatives and Development Enterprises Ltd & 2 Others vs Mariam Omar Matotola & 235 Others (Misc. Commercial Cause No. 2 of 2023) [2024] TZHCComD 189 (16 August 2024). I should hasten to add that the same principles above stated are also reflected under Rule 90 (2) of the Companies (Insolvency) Rules, 2005 where the law states that: “The petition for winding up [may be] presented by the company, the directors, one or more creditors, one or more contributories, the Minister, the Official receiver, or any person entitled under any enactment to present such a petition.” The above provision signifies that in presenting the petition for compulsory winding up by the Court, directors, as distinct persons from the company which they

manage, may present a petition for winding up of the company, in their capacity as directors acting either unanimously as one body or discordantly where one or several directors may, in their individual names, present the petition for winding up by the Court. In absence of a 13 special resolution of the board of directors, the directors must act unanimously in presenting the winding up petition but still they have to do so in their individual names not in the name of the company. Where the directors have passed a special Board resolution for winding up of the company by the Court, any one director or several such directors of the company can present in Court the winding up petition in his or their individual names but not in the name of the company. Where the Winding Up Petition is presented in the name of the Company, the special resolution for winding up should have been passed by the Company (Members). It must be stressed that directors of a company have the requisite locus standi to legally present a petition in Court seeking for orders of the Court for compulsory winding up of the company they manage. However, in doing so, the directors will not be representing the Company (Members of the insolvent company) anymore; rather they will be representing and protecting interests of the creditors of the insolvent company. The locus standi is given to directors qua directors, and

not in their usual agent- principal capacity for and on behalf of the company. This is because once a company is in financial trouble (insolvency), directors' duty shifts from Members of the Company to creditors of the Company. Petitioning the Court 14 for compulsory winding up by the Court, may be one of the directors’ ways of protecting the company’s creditors from incurring losses. In terms of Rule 90(2) of the Companies (Insolvency) Rules, 2005, the company as a legal entity, through a special resolution passed by its members, may also bring a petition for compulsory winding up of the company. That is, in the name of the company. It is worth noting that in this case too, directors as agents or Managers of the company, may play an active role like signing the “pleadings” and attending the proceedings for and on behalf of the company. However, the winding up petition presented by the Company must be initiated by the Company through its Members special resolution and the winding up petition must be presented in Court in the name of the Company as the petitioner. There are other persons with locus standi interms of section 281(1) of the Companies Act and Rule 90(2) of the Companies (Insolvency) Rules, 2005. For the purpose of determining the present Petition, the differential treatment of locus standi of the company and of the directors to petition for compulsory winding up by

the Court, is relevant. 15 In the present case, the Directors of the Petitioner Company passed a special Resolution Annexture A-8 t the Petition and stated in their special resolution that the company is unable to pay its debts and they, therefore, caused to be filed in Court this Petition for its compulsory winding up by order of the Court. The petition was presented on the ground of insolvency. In this regard, the directors’ duty had thereby shifted towards the Creditors and not the Members of the Company. Contrary to the requirements of the law, the directors passed the special resolution for winding up of the Company but then caused the Petition for winding up to be presented in Court in the name of the company itself instead of presenting the Petition in their own names as directors. That is where the problem lies and it defeats the Petition on lack of the requisite locus standi since there is no accompanying Members’ Special Resolution sanctioning the Company to petition for the winding up in the name of the Company. The Directors who passed the Special Resolution of the Board of Directors for the winding up of the company on the ground of insolvency, did not file the Petition in their names as Directors. As lack of locus standi goes to the root of jurisdiction, I do hereby dismiss the Petition with no order as to costs. It is so ordered. 16 A. H. GONZI

JUDGE 23/08/2024 Ruling is delivered virtually in online Court session this 23rd day of August 2024 in the presence of Ms. Juliana Lauwo, learned Advocate for the Petitioner. A. H. GONZI

JUDGE 23/08/2024 17