[2025] UGCommC 121

# 5 THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION) COMPANY CAUSE NO. 0001 OF 2022 IN THE MATTER OF A PETITION FOR WINDING UP OF SIMBA 10 TELECOM LIMITED BY VISARE (U) LIMITED AND IN THE MATTER OF THE INSOLVENCY ACT NO.14 OF 2011 AND IN THE MATTER OF INSOLVENCY REGULATIONS, 2013

VISARE (U) LIMITED…………………………………….. PETITIONER

### VERSUS

SIMBA TELECOM LIMITED………………………………RESPONDENT

#### BEFORE: HON. LADY JUSTICE SUSAN ODONGO

## 25 RULING

The Petition is brought pursuant to the Insolvency Act, Cap 108, and the Insolvency (Amendment) Regulations, 2023 for orders that:

- a) The respondent company be wound up by this Honorable Court; - b) The Court issues an order for the liquidation of the respondent company.

#### 30 Background

On the 24th day of March, 20214, the petitioner entered into a sale agreement with the respondent company for the purchase of land described as LRV 4294 Folio 20 Plot 12 Moyo Close, Kololo, at a consideration of USD 4,175,000. The


5 respondent remitted only USD 3,775,000, thereby leaving an outstanding balance of USD 400,000.

Following the respondent's failure to remit the outstanding balance, the petitioner instituted *Civil Suit No. 83 of 2020*, seeking a decree for payment of the said sum. Judgment was duly entered in favor of the petitioner, with orders 10 directing the respondent to pay the outstanding amount of USD 400,000

The respondent neither appealed the said judgment nor complied with the court orders to date. According to the respondent, a tax audit of the respondent's tax returns was conducted by the URA whereby the URA discovered that the

together with interest at the rate of 1% per annum until full settlement.

- 15 Petitioner was liable to a tax obligation arising out of the land sale transaction between the Petitioner and the respondent, and of money due and owing to the petitioner from the respondent arising from the decree in HCCS No. 83 of 2020. In light of this, the respondent was appointed collection agent against the petitioner vide Third Party Agent Notice Reference No. 27152263 to remit to - 20 URA Ugx 2,439,638,250/= in discharge of the petitioner's tax obligations with URA. The respondent has since remitted Ugx 90,000,000 to URA. The Petitioner had in Miscellaneous Application No. 0218 of 2023 and Execution Miscellaneous Application No. 0061 of 2023 commenced garnishee/execution proceedings against the respondent but the same were dismissed by this - 25 Honorable court as the decretal sum in CS 83 of 2020 is wholly encumbered by the third party agency notice. The decretal sum is due and owing to URA and cannot be paid to the petitioner.

The petitioner has filed these insolvency proceedings to recover the debt from the respondent.

## 30 Petition and Affidavit in Support

The provisions of the law under which this Petition is commenced and the orders sought under it, have already been set out at the preamble of this ruling.

The Petition is supported by an affidavit sworn by Vijay Reddy, Managing Director of the petitioner, who avers that the statutory demand was duly served

35 on the respondent, but the respondent has failed to comply therewith.


## 5 Affidavit in Reply

The respondent filed an affidavit in reply sworn by Laurel Ababuza Baguma, the legal officer of the respondent company. The affidavit, though largely argumentative, contends that the respondent was never served with the statutory demand. Further, it is averred that the petitioner failed to publish a public notice

10 following the filing of the petition. The respondent asserts willingness to pay the debt but states that a third-party agency notice by the Uganda Revenue Authority (URA), has been issued to the respondent to collect tax owed by the petitioner to URA.

The contents of the affidavit in rejoinder have been duly considered.

15 It is also noted that the petitioner did not file written submissions addressing the preliminary objections raised by the respondent.

### Representation

On the dates this matter came up for hearing, both parties were represented. The respondent raised a preliminary objection on issuance of a public notice and a

20 statutory demand. The Court issued direction to the parties for filing of written submissions in respect to the Preliminary objections raised. The respondent complied.

## Issues for determination

I have taken note of the issues raised by the respondent for determination. In 25 accordance with Order 15 rule 5 of the Civil Procedure Rules, I will amend the issues enable for the proper determination of the dispute. The issues for determination are therefore:

1. Whether the failure to issue a public notice by the petitioner renders the petition incompetent and liable to be struck out.

2. Whether service of the statutory demand was effective? If not, whether the petition is competent?


### 5 Respondent's Submissions

The respondent relied on the decision in *Brook 2 B. V & 2 Ors v Brood (U) Limited*, Winding Up Cause No. 005 of 2023, submitting that the petitioner failed to publish a public notice subsequent to the petition, which is a mandatory statutory requirement. Furthermore, the respondent contended that the 10 petitioner did not serve the statutory demand on the respondent as required by law. The respondent argued that such non-compliance renders the petition null and void and prayed that the petition be dismissed accordingly.

#### Applicable Law

A company is said to be insolvent if it is unable to pay its debts and upon court 15 being satisfied that the requirements under sections 2 and 92(1) (a) and (2) of the Insolvency Act Cap. 108, Regulations 85(1) & (2) and 86 of the Insolvency (Amendment) Regulations 2023, S. I N0. 76 of 2023 have been met.

Section 2(1) & (2) of the Insolvency Act Cap 108 provides that:

*(1). Subject to subsection (2) and unless the contrary is proved, a debtor is presumed* 20 *to be unable to pay the debtor's debts if;*

*a) the debtor has failed to comply with a statutory demand;*

*b) the execution issued against the debtor in respect of a judgment debt has been returned unsatisfied in whole or in part; or*

*c) all or substantially all the property of the debtor is in possession or control of a* 25 *receiver or some other person enforcing a charge over that property.*

> *2. On a petition to the court for the liquidation of a company or bankruptcy order, evidence of failure to comply with a statutory demand by the creditor, shall not be admissible as evidence of inability to pay debts unless the application is made within thirty working days after the last date for compliance with the demand.*

## 30 *Section 92* of the same Act provides that:

*"(1) Subject to subsection (2), the court may appoint a liquidator on the application of; (d) a creditor of the company;*

*(2) The court may make an order under subsection (1), if it is satisfied that the company is unable to pay its debts within the meaning of section 2."*


5 With regard to this petition, *Regulation 85 (1) and (2)* of the Insolvency Regulations S. I No. 36 of 2013 as amended by the Insolvency (Amendment) Regulations 2023, S. I N0. 76 of 2023) provides that:

*"(1) A petition for the liquidation of a company may be presented to the court by-.* 10 *(d) a creditor of the company;*

> *(2) A petition to liquidate a company may be presented to the court where the company;*

*(a) has been served with a statutory demand and is unable to comply with the demand;*

15 *(b) is unable to pay its debts; (c) has agreed to make a settlement with its creditors or entered into administration".*

Notably the respondent has raised preliminary objections that ought to be addressed before the court considers the merits of this petition.

- 20 The courts have defined preliminary objection *to "consist of a point of law which has been pleaded, or which arises by clear implication out of the pleadings, and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the jurisdiction of the court, or a plea of limitation, or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration*." - 25 *"A preliminary objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion*.*"*

*(see; Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA* 30 *696, Law, J. A. stated at page 700 and Sir Charles Newbold, P. at page 701)*

# The Court's Determination

Whether the failure to issue a public notice petition renders the petition incompetent and liable to be struck out.


- 5 On this issue, the respondent submits that the petition is bad in law and an abuse of court process and ought to be struck out. The respondent in *paragraph 3(d*) of the affidavit in reply clearly affirms that the petitioner did not issue any public notice against the respondent notifying any other creditors of the existence of the petition contrary to the Insolvency (Amendment) regulations 2023. - 10 *Regulation 89 of the insolvency Regulations S. I NO.36 of 2013 as amended by the insolvency (amendment) regulations of 2023* is to the effect that;

"*A company or petitioning creditor shall within seven working days after filing the petition give public notice of the petition in Form 4 in Schedule 1."*

The courts have elaborated on the rationale for issuance of a public notice in 15 respect to insolvency proceedings

- *a) It is a legal requirement under Regulation 89 of the Insolvency Regulations SI No. 36 of 2013 as amended by the Insolvency (Amendment) Regulations 2023, S. I No. 76 of 2023). This provision is couched in mandatory terms. It does not make it an option or a discretion to be exercised by the petitioner;* - 20 - *b) It is important to notify stakeholders. The latter includes creditors who once notified shall be able to submit their claims. Customers and suppliers is another category of stakeholders that must be alerted. These are parties with ongoing contracts with the company or have some other form of interest in the company.* 25 *The last category is that of the shareholders. These are informed about the dissolution of the company;* - *c) Notifying the public is important for purposes of transparency and accountability. Once the public is aware, this would prevent secret winding up of the company. A* 30 *public notice would also reduce the risk of fraudulent transactions; and lastly* - *d) A public notice is important for practical reasons such as enabling creditors to submit their claims within a specified time, it facilitates the sale or disposal of the company assets and enables the completion of any outstanding matters."* - 35 *(see; Brook 2 B. V & 2 Ors V Brood (U) Limited winding up cause No. 005 of 2023).*

5 From the court record, it is evident that the petitioner failed to issue a public notice, which constitutes a mandatory statutory obligation. The consequence of non-compliance with this requirement is that it renders the winding-up proceedings null and void and liable to be set aside.

I answer this issue in the affirmative.

10 Whether service of the statutory demand was effective? If not, whether the petition is competent?

Under the law, specifically *Sec 2 (1) and (2) of the insolvency Act cap 108*, a debtor is presumed to have failed to pay their debts if;

*a) the debtor has failed to comply with a statutory demand;*

15 *b) the execution issued against the debtor in respect of a judgment debt has been returned unsatisfied in whole or in part; or*

*c) all or substantially all the property of the debtor is in possession or control of a receiver or some other person enforcing a charge over that property.*

*2. On a petition to the court for the liquidation of a company bankruptcy order, evidence* 20 *of failure to comply with a statutory den by the creditor, shall not be admissible as evidence of inability to pay debts unless the application is made within thirty working days after the last for compliance with the demand.*

The petitioner under *paragraph 13* of the affidavit in support of the petition avers that the respondent company was duly served with a statutory demand for 25 payment of the outstanding debt, which was acknowledged as received on the 17th day of November, 2022 and despite such service, the respondent has failed and neglected to satisfy the payment as demanded.

Contrary to the petitioner's claim, the respondent contends that no statutory demand was ever served upon the respondent company. Furthermore, the 30 respondent asserts that the petitioner has not filed any affidavit of service to substantiate the claim of proper service of the statutory demand.

Notwithstanding the respondent's denial, the court record contains an affidavit of service sworn on the 8th day of December, 2022, by one Sam Wangoina, a process server affiliated with Kampala Associated Advocates. The affidavit


5 affirms that the statutory demand was personally received and acknowledged by the respondent on the 7th day of November, 2022.

The respondent, in their submission, while relying on paragraph 2 of the petitioner's affidavit in rejoinder and annexure A thereto, contends that the statutory demand was served on *"Simba Group"* rather than *"Simba Telecom*

10 *Limited"* (the respondent).

*Regulation 5* of the Insolvency Regulations No. 36 of 2013 provides,

- *1) Subject to sub regulation (2) a statutory notice shall be served personally on the debtor.* - *2) Where the debtor cannot be found, the demand may be served on the debtor;* - 15 *a) at the registered office or place of business of the debtor;* - *b) by sending it to the address of the debtor by registered mail;* - *c) by serving the legal representative of the debtor, if known;* - *d) in any other manner determined by the court.* - 20 *3) Proof of service of a statutory demand shall be by an affidavit of service stating the time and manner of service.*

I note that the stamp on the statutory demand (*annexure A to the affidavit in rejoinder*) clearly indicates *"Simba Group"* as the party served, not *"Simba Telecom Limited."* The purpose of service of a statutory notice is to notify the company of

- 25 the creditor's demand for payment and to provide an opportunity to settle the debt before the commencement of winding up proceedings. In addition, it serves as evidence of the company's inability to pay its debts within the meaning of the applicable law. So, where a statutory notice is served on a party other than the legal entity that owes the debt, such service undermines the objective of the - 30 notice is defective for failing to meet the requirements of the law. It exposes subsequent winding up proceedings to being struck out.

I hereby find such service to be irregular and a nullity, rendering it ineffective for all legal intents and purposes. The Petition is therefore not competent and is hereby struck out

35 Consequently, I make the following orders:


- 5 1. Company Cause No. 0001 of 2022 is dismissed. - 2. Each party is to their own costs.

Dated, signed and delivered electronically this 2 nd day of June, 2025.

.............................................

Susan Odongo JUDGE

15