by Catherine Abenaitwe, ABM Associate Attorney

 

A voluntary winding up of a company is almost always easier than going through the courts. Voluntary winding up allows the company to move at its own pace, settle its debts, credits, liabilities, and accounts, without any orders or directions of court. However, in order to qualify for a voluntary winding up, a company must meet a very important condition – it must have the ability to pay all of its debts in full.

 

In Uganda, a company incorporated or registered under the Companies Act may be dissolved or deregistered in different ways and for different reasons. Some common reasons are financial difficulties or disagreements among the members. The process of closing down a company and having it deregistered is called ‘winding up’. Under the The Companies Act, (Act No. 1 of 2012), there are two modes of winding of a company in Uganda:

 

1. By the Court (compulsory)

 

2. By the Members (voluntary)

 

Members’ Voluntary Winding Up (Sec. 268-272)

 

When a company is solvent and capable of paying its liabilities in full; the members may, by resolution, decide to voluntarily wind up the business of the company. A declaration of solvency, stating that the company is capable of paying its debts in full, is mandatory for a voluntary winding up.

 

General conditions for Voluntary winding up (Sec. 268)

 

A voluntary winding up requires the following:

 

1. Passing of a resolution that the company be wound up voluntarily.

 

2. Passing of a special resolution to the effect that the company, by reason of its liabilities, cannot continue its business and that it is advisable to wind it up.

 

3. Expiration of the period fixed by the Articles or occurrence of the event which the Articles provide for expiration upon its occurrence followed by a resolution for voluntary winding up.

 

Notice of Resolution to Wind Up (Sec.269)

 

A resolution to wind up the company has to be published in the Gazette. Also, a resolution must be published in the local newspaper (one that has wide coverage) circulating in Uganda within 14 days from the date of its being passed by the Company.

 

Declaration of Solvency (Sec. 271)

 

A Declaration of Solvency refers to a declaration by the directors that they have made a full inquiry into the affairs of the company and they have formed an opinion that the company is able to pay its debts in full within the prescribed period not exceeding twelve months from the commencement of the winding up. A valid declaration of solvency must comply with the following:

 

1. It has to be made within 30 days immediately preceding the date of passing of the resolution to wind up the company and is delivered to the Registrar for registration before that date.

 

2. It has to contain a statement of the company’s assets and liabilities as of the latest practicable date before the making of the declaration.

 

Commencement of Voluntary Winding Up

 

Voluntary winding up of a company in Uganda commences immediately after passing of the resolution for voluntary winding up by the company. The entire process can take 6 months to a year. Given the technicality of the procedures, Ugandan companies usually need legal professionals to assist in drafting and filing the necessary documentation.

 

Powers of the Court in cases of voluntary winding up

 

A Ugandan court has very broad power over a company that is being wound up, whether voluntarily or involuntarily. It has the power to appoint a liquidator where the appointed liquidator is not acting, or it may remove the liquidator and appoint another liquidator if justifiable cause is shown. A Ugandan court also has the power to determine any question that arises concerning winding up of the company, after an application by the Liquidator, contributory, or creditor. It can also exercise any power which it would have if the company were actually being wound up by the court, so the extent of its powers are essentially the same, regardless of whether the company is winding up voluntarily or involuntarily.

 

Effects of Voluntary Winding Up (Sec. 270)

 

After the resolution is passed and the winding up begins, the company will cease all of its business activities, except those required for the beneficial winding up of the company. Also, in cases of members’ voluntary winding up, the Board of Directors’ authority stops after a liquidator is appointed.

 

In conclusion, voluntary winding up of a company in Uganda is a good form of winding up as it allows the company to settle any issues at its own pace and avoids orders and directions of Court.