Учебный год 2023 / phd

relevant as unemployment and lack of funding for the same are a threat to the social order.

Although initially it was thought significant policy-wise to define strategic areas which could not be open and available for foreign investment, this idea was short-lived and in fact overridden by the desire to facilitate enhanced productivity and efficiency necessary for competitiveness in trade and capital flows. Indeed, the laws and policies that have been put in place have tended to be more favourable to cross-border trade and investment than before as the countries under study strive to carve their places in the global economy and niches for their products in the international market.12 Worth noting is the significant changes in, and development of, economic conditions and policy taking place since the mid 1980s and early 1990s to date, although critics maintain that much of the changes effected thus far do not adequately address the realities of SSA countries.13Notwithstanding such inclinations, there were initially no significant efforts regarding the reform of cross-border insolvency law, perhaps because of the lack of awareness and the possibility that such undertaking was considered to be less urgent and pressing than others.

One of the challenges that SSA countries face is to strengthen the efforts seeking to attract more capital inflow, which now forms the basic consideration in all reform undertaking that SSA governments pursue. Addressing such challenge increases fundamentally the potential for the occurrence of cross-border

and transition nations.’ The small share received thus far is largely confined in the natural resource sector.

12See for instance, Tanzania, National Trade Policy (Government Printer, Dar es salaam 2003) < http://www.tanzania.go.tz/pdf/tradepolicy.pdf > accessed 18/10/2010; Tanzania, New Foreign Policy (Government Printer, Dar es salaam 2001) < http://www.foreign.go.tz/index.php/foreign/aboutus/category/foreign_policy/ > accessed 18/10/2010; Tanzania, Sustainable Industrial Development Policy -SIDP (1996-2020)

(Government Printer, Dar es salaam 1996) < http://www.tzonline.org/pdf/sustainableindustrial.pdf > accessed 18/10/2010. Privatisation Act (Chapter 485 of Laws of Kenya) s 29 provides that both Kenyan and non-Kenyan are eligible to participate in privatisation of state owned enterprises, though the law is not meant to limit restrictions imposed by other legislation.

13Text to n 13 and 17 in chapter 4. Despite the reforms, Tanzania still in constitutional terms maintains the desire to build a socialist economy. This is notwithstanding concerns that such aspirations do not match with the realities of most of the government policies and law.

198

insolvencies which must also be addressed. While a complete analysis of these challenges is beyond the scope of this chapter, one must be cognizant of the connection between effective cross-border insolvency regulation and development concerns which potentially militate against effectiveness and the capacity to develop and implement an otherwise effective system.14

6.2.2Application of Law in Cross-Border Insolvencies in SSA Countries: Past, Present and Future

Most of the SSA countries do not exhibit a history of being affected by and involved in international insolvencies and extensive implementation of measures aiming to assist co-operation in any cross-border insolvencies as is the case for most developed countries.15 There is a lack of high profile cross-border insolvency cases that involved SSA countries, as is the case for other developing countries.16 Because of such absence, there has been an alarming dearth of cases and literature covering SSA in relation to cross-border insolvencies, unlike the situation in developed countries, such as the UK and the US, and emerging economies. This is one reason for the persistent lack of legislative activity and the lagging behind of the relevant laws in SSA countries.

There are theories which try to explain the lack of judicial and legislative activities in the area of insolvency and cross-border insolvency, in particular in SSA countries. One such theory associates the limited development of the law, its application and use with firstly, the inherent weaknesses in the manner in which the relevant laws were transplanted in SSA countries.17 The argument is

14Nduhukhire-Owa-Mataze, ‘Africa: A Continent Existing and Entering a Century in a “SickBay”’ (1999) 3 Mtafiti Mwa frika (African Researcher) 56, 60-63; and J Sarra (n 3) 13

15B Wessels, BA Markell and JJ Kilborn, International Cooperation in Bankruptcy and Insolvency Matters (Oxford, OUP 2009) 71

16DA Ailola, ‘The UNCITRAL Model Law on Cross-Border Insolvency: Its Efficacy and Suitability as A Basis for A SADC Convention’ (2000) 11 Stell L Rev 215; and D Ailola, ‘Recognition of Foreign Proceedings, Orders and Officials in Insolvency in Southern Africa: A Call for a Regional Convention’ (1999) 32 Comp and Int’l L J S Afr 54

17SE Merry, ‘From Law and Colonialism to Law and Globalization’ (2003) 28 Law & Social Inquiry 569; DB, K Pistor, ‘Economic Development, Legality, and the Transplant Effect’ (2003)

47Eur Econ Rev 165; RJ Daniels, MJ Trebilcock, and LD Carson, ‘The Legacy of Empire: The Common Law Inheritance and Commitments to Legality in Former British Colonies’ (2011) 56 Am J Com L 111; LM Musikali, ‘The Law Affecting Corporate Governance in Kenya: A Need for Review’ (2008) 19 ICCLR 213, 219; AT Nguluma, ‘The Court of Appeal of Tanzania and the Development of Insolvency Law in Tanzania: A Historical Perspective’ in CM Peter and HK

199

that the relevant laws were neither made in a scientific way to address specific issues arising from or connected to the economic activity of the day, nor were they a translation of the socio-economic set up in the colonies. Rather, it was a mere super-imposition of legal regimes that seemed to have worked well in other colonies or the colonising country. This made the law in many cases to remain redundant or to be applied in a manner that was different from what had been intended.18

The other theory is that the economic forces in SSA countries were not strong enough to stimulate the growth and development of the necessary socioeconomic relations or corporate formations, as well as international commercial linkage that could trigger the application of insolvency laws in relation to crossborder insolvency incidences.19 Accordingly, in SSA countries where the forces were relatively stronger than others, as it was the case, for instance, in South Africa, and to some extent, Nigeria and Kenya, the extent of application and use of the law at least to domestic insolvency was relatively higher than in other countries such as Tanzania.20

Yet another theory which correlates with the foregoing theories is to the effect that, with the advent of political independence, the post-independence states in SSA inherited the colonial socio-economic set-up and radically institutionalised policies that had remarkable negative impact on the development of insolvency law, its application and enforceability in appropriate cases.21 This pursuit was characterised by nationalisation policies, and other radical socialist inclined policies which swept most post-independence SSA countries in the early days of

Bisimba (eds), Law and Justice in Tanzania: Quarter of a Century of the Court of Appeal of Tanzania (Mkuki na Nyota Publishers, Dar es salaam 2007)173, 176; BS Masoud, ‘Transnational Aspects of Tanzania’s Corporate Insolvency Law: Challenges and Prospects’ (2006)14 IIUM Law Journal 119, 125

18Ibid

19AT Nguluma (n 17) 176

20There has always been a considerable volume of insolvent winding up cases in Kenya as

compared to Tanzania. See < http://kenyalaw.org/CaseSearch/ > accessed 18 September 2011 21 AT Nguluma (n 17) 173, 176; BS Masoud (n 17); D Himbara, ‘The Failed Africanization of Commerce and Industry in Kenya’ (1994) 22 World Dev 469-482

200

their post-independence period.22 The pursuit effectively frustrated foreign investors and led to SSA not being regarded as an appropriate foreign investment destination and saw most laws becoming redundant as they were considered to have the imperialist agenda and therefore irrelevant to the policies of the day.23 This is particularly evident in Tanzania which clung to a planned economy and maintained a large public sector economy through SOEs.24 The lack of significant changes in the laws relating to insolvency inherited from colonial powers in Tanzania and Kenya, as is so for the majority of SSA countries, could as well be looked at and explained in this context. Indeed, whatever developments and changes were effected in the law and practice were indeed targeted at furtherance of the radical post-independence ideologies.

Consequently, there are a handful of old reported cases on personal insolvency having an international element and involving the application of the rules of bankruptcy on co-operation between Kenya, Tanzania and Uganda.25 It is interesting that most of these cases occurred in the 1950s and 1960s and largely involved immigrants of Asian origin whose migration history into Eastern Africa is traceable from the British colonial power’s demand for cheap labourers. Crucial issues in most of such cases concerned jurisdiction and property of debtors situated in another jurisdiction within East Africa. In one of such cases it was clearly pointed out that:

22D Katona, ‘Challenging the Global Structure Through Self-Determination: An African Perspective’ (1999) 14 Am U Int’l L Rev 1459, showing how such trend lead to what was then referred to as the New International Economic Order (“NIEO”) movement.

23TJ Moss, V Ramachandran and MK Shah, ‘Is Africa’s Skepticism of Foreign Capital Justified? Evidence from East African Firm Survey Data’, (2004) Centre for Global Development Working Paper No. 41/2004 < http://ssrn.com/abstract=1112683 > accessed 16 September 2010 [12]; and V Mosoti, ‘Bilateral Investment Treaties and the Possibility of a Multilateral Framework on Investment at the WTO: Are Poor Economies Caught in Between?’ (2005-2006)

26Nw J Int’l L & Bus 95, 114. B Mihyo, Non-Market Controls and the Accountability of Public Enterprises in Tanzania (Macmillan, London 1994) 127 & 128

24See generally, B Mihyo (n 23). The state owned enterprises were wholly dependent on the states. The financially strapped ones were fully insulated by the states against collapsing through provision of financial subventions, subsidies, shifting of resources, and reorganisations which were motivated by political desires. For implication of state owned enterprises on insolvency law generally in other jurisdictions such as China, see RW Harmer (n 10) 2563; and R Parry and H Zhang, ‘China’s New Corporate Rescue Laws: Perspectives and Principles’ (2008) 8 JCLS 113.

25IR Macneil, Bankruptcy Law in East Africa (University of Dar es salaam, Dar es salaam, 1966) 210-220 citing and discussing Re Dayalji Laxman [1959] EA 216 (U); Official Receiver v Messrs Ukamba Service Store 20 EACA 19 (1952); Official Receiver v Messrs Savadia & Co 18 EACA

119(1951); and Re Plataniotis [1958] EA 217 (K)

201

which the arrangement was consequently sanctioned by the court in Tanzania.31 The use of a protocol to facilitate implementation of the scheme of arrangement in both Zambia and Tanzania is in accord with the current trends world-wide.32

With the globalisation of trade and investment, followed by privatisation of SOEs in SSA countries and liberalisation of private investment, there have over the recent years increasingly been signs of potentialities of a new chapter of gradual involvement of SSA countries in incidences of cross-border insolvency. Such incidences could be of local companies and individuals having cross-border commercial links with foreign commercial actors due to their increased participation in international commercial transactions.33 The incidences could also relate to foreign companies having commercial undertakings and even commercial establishments and property in SSA countries.34 Indeed, it is now not uncommon for companies to be incorporated elsewhere but carry on business in SSA countries after being assured of a favourable investment environment. It is also not uncommon to find companies incorporated in and carrying on business in SSA countries, as subsidiaries or affiliates of parent companies headquartered abroad. These developments challenge the preparedness of the legislative framework of the countries under study for dealing with cross-border insolvencies in a manner that is in harmony with their pursuit of attracting and promoting trade and capital inflows.

Consistent with the above circumstances, it is now not surprising that SSA countries have quite recently been engaged in the on-going multi-jurisdiction insolvency proceedings of the Nortel Group which, with a parent company in Canada, had operations run through subsidiaries in North America, Europe, the

31Companies Act (Chapter 686 of the Laws of Zambia) ss 205-207; and Companies Ordinance (Chapter 212 of the Laws of Tanzania) ss 154 and 155 ( repealed)

32JM Farley and EB Leonard, ‘Encouraging Signs Emerge in Cross-Border Cooperation Courts, Insolvency Professionals Take the Lead’ Journal of Corporate Renewal, February 1, 2002 < http://www.turnaround.org/Publications/Articles.aspx?objectID=874 > accessed 21 October 2010

33Text to n 3, 5 and 52 in chapter 3

34Ibid

203

Middle East and Africa.35 As the European, the Middle Eastern and African subsidiaries were highly integrated and managed as one region from the branch in the UK, the administration proceedings commenced in the UK were effectively meant to put under administrations all the companies in these region, namely Europe, the Middle East, and Africa.36 The court in the UK was satisfied that the ‘centre of main interest’ (“COMI”) of the Nortel Group for the subsidiaries in Europe, the Middle East and Africa was in England and as such it had jurisdiction to open main insolvency proceedings, namely administration, in respect of each of such subsidiaries in such geographic regions.37 Among the orders made was one to authorise the administrators to apply to the relevant judicial authorities in any other country for assistance as they considered relevant for the performance of their functions and to put in place an arrangement in such authorities under which they would be informed of any request or application for the opening of secondary insolvency proceedings in those jurisdictions in relation to any of the companies and provide administrators with an opportunity to be heard on any such application.

While the Nortel Group case is purely one such case which would require provision of judicial assistance by the relevant judicial authorities in a manner that would best maximise the values of the insolvent company’s estate for the best interests of all involved, it remains to be seen how the relevant SSA countries will play their part and accord due regard to the interests and expectation of the local creditors who may not know what to do in relation to their debts and what is going on globally with regard to the company. While such proceedings would essentially require judicial assistance and co-operation, the laws in SSA countries may not explicitly provide for such procedures and, if they

35J Sarra, ‘Communications Gone Awry: The Insolvency of Nortel and the Challenge of MultiJurisdictional Cross-Border Insolvency Proceedings of Related Business Entities’ (A Paper given at the INSOL International Academics’ Group Meeting Radisson Blu Royal Hotel Dublin 11-13 June 2010)

36Re Nortel Networks SSA and other Companies [2008] EWHC 206

37Although the EC Regulation on Insolvency Proceedings (“ECIR”) may seem not to apply in other jurisdictions outside EU, by virtue of Re Brac Rent a Car [2003] 1 WLR 1421, [2003] All ER (D) 98 (Feb), the court of a member state has jurisdiction to open insolvency proceedings in relation to a company incorporated outside the community, if the centre of the company's main interests was in that member state. This is said to be based on the construction given to ECIR art

3.See also Re Ci4net.com Inc [2005] BCC 277.

204

do, such procedure may have never been invoked in the past with regard to insolvency proceedings. Reliance may need to be made on the common law where applicable or ‘…on ad hoc co-operation arrangements, which have not generally proven to be a satisfactory solution.’38 However, it might be of interest to note that, quite recently, the court in Uganda was reported to have employed its discretion, and offered judicial assistance to a receiver of the First Bank of Grenada to preserve some assets bought from funds defrauded from creditors in Grenada and the United States.39

In yet another case that occurred in Tanzania involving the insolvency of PepsiCola Bottling Group Company (consisting of eight subsidiaries), there emerged key issues impliedly touching on cross-border insolvency issues.40 Firstly, apart from local creditors, the case involved foreign creditors, largely consisting of Pepsi-Cola International and its associates, which claimed a total of USD 12,048,000.00 (consisting of a loan, interest on the loan, and a claim for payment for concentrate). The debt was consequently written off following the foreign creditors’ acquisition of the Pepsi-cola business in Tanzania under a scheme of arrangement proposed by the liquidator and approved by all creditors.

While the creditors, inclusive of the foreign ones as above mentioned, unrestrictedly participated in such proceedings and the resulting scheme of arrangement, the part played by the foreign creditors was crucially significant as they contributed to the conclusion of the arrangement by the undertaking to acquire the insolvent companies under a new company. During the commencement of such proceedings, the Court of Appeal, while reacting to the appointment of one non-national liquidator in such domestic proceedings, stated

38LA Bebchuk and AT Guzman, ‘An Economic Analysis of Transnational Bankruptcies’ (1999)

42JL & Econ 775, 786 and 787

39The First International Bank of Grenada (In Liquidation) vs Theoderous Ten Brink & Others

HCCS 298 of 2003 (Unreported). For a brief discussion on this case, see C Bwanika and KK Kenneth, ‘Insolvency-Uganda Experience’ A paper given for Uganda Law Reform Commission

Conference on Business Law and Development: The Way Forward under the Commercial Justice Reform Programme, Nile International Conference Centre 19-21st July 2004

40Fahari Bottlers Ltd and Southern Highlands Bottlers Ltd vs The Registrar of Companies and The National Bank of Commerce (1997) Ltd Court of Appeal of Tanzania, Civil Revision No. 1 of 1999; and Re Fahari Bottlers Ltd, High Court of Tanzania Civil Cause No. 155 of 1998

205

that ‘normally no person resident outside the jurisdiction of the court is qualified for appointment as a liquidator. It is our understanding that the same position prevails in England.’41 Indeed, this position would affect the recognition of foreign proceedings in Tanzania, which could otherwise allow a foreign office holder to act directly through the competent local court in respect of assets and creditors of an insolvent foreign company having an established place of business in Tanzania.42

Instances are also starting to emerge which potentially might encourage SSA countries to consider co-operation with other jurisdictions to secure better protection of the interests of creditors and other legitimate local interests. This is apparent in a recent Nigerian case43 involving insolvency proceedings against Alan Dick and Company West Africa Ltd, a Nigerian incorporated company, having directors and a parent company in the UK.44 In these Nigerian proceedings consideration was given to seeking recognition of the Nigerian proceedings and judicial assistance in the UK to pursue the assets of the company in the UK, where the company’s directors are based and the parent company is situated. The merit of such proceedings and the consideration given to seeking recognition in the UK is beyond the scope of this chapter. However, this move was regarded as critically significant in enabling the liquidators to examine the UK based directors and the UK based parent company, obtain vital information from the same and cause the directors to eventually contribute personally to offsetting the liabilities of the company.

41Fahari Bottlers Ltd and Southern Highlands Bottlers Ltd vs The Registrar of Companies and The National Bank of Commerce (1997) Ltd, Court of Appeal of Tanzania, Civil Revision No. 1

of 1999 (unreported). In support of such observation the court was guided by and in fact used JJ Charlesworth and G Morse, Charlesworth and Morse Company Law (15th edn Sweet & Maxwell, London 1995) 752 as its authority

42Text to n 66 below

43Re Alan Dick and Company West Africa Ltd, Nigerian Federal High Court Suit No FHC/L/CP/654/08 discussed in A Idigpe, ‘Bridging Gap Between Nigerian Insolvency and Cross-Border Insolvency Best Practices: Alan Dick Case’, The Guardian ( Nigeria 08 June 2010) <http://www.guardiannewsngr.com/index.php?option=com_content&view=article&id=12971:bri dging-gap-between-nigerian-insolvency-and-cross-border-insolvency-best-practices-alan-dick- case-&catid=42:law&Itemid=600 > accessed 24 August 2010

44For another raw example of such instances indicating the potentials for occurrence of crossborder insolvencies involving the countries under study, see text to n 129 in chapter 7

206

There was a bona fide belief that the substantial part of the funds and assets of the company had been repatriated to the UK and or converted into foreign assets acquired by the directors who had since not submitted to the jurisdiction of the Nigerian court.45 This was particularly so because, since they filed involuntary winding up proceedings against the company, the directors had allegedly sought to avoid meeting the more tasking statutory conditions for members' voluntary winding up.46

Among the creditors to the company are banks, tax authorities, employees, suppliers, and other trading creditors. It is argued that the voluntary proceedings were hurriedly sought by the company when it had become clear that it was unable to settle its commercial commitment, and indeed after meetings held with its bankers, to attempt restructuring.47 Whether or not such consideration of recognition and judicial assistance in dealing with the insolvency proceedings of the company has merits and potentials to materialise is not a key issue in this study. What is important for the present purpose is how African countries are increasingly becoming aware of the significance of cross-border insolvency law. Obviously, the challenge in the implementation of such consideration by any SSA country is to meet the criteria for being eligible for receiving recognition and judicial assistance in appropriate cases, given the prevalence of an element of reciprocity, albeit in a varied way, within cross-border insolvency systems of different jurisdictions.48

All the above developments, and indeed many more to come, challenge the preparedness of the legislative framework of the countries under study for dealing with cross-border insolvencies in a manner that is in harmony with their pursuit of attracting and promoting capital inflows but without being distanced from the local circumstances and the international insolvency standards. The

45A Idigpe (n 43)

46Ibid. The conditions, for instance, required a declaration from the directors that the company was solvent, as well as registration of the company’s latest statement of assets and liabilities, among others.

47A Idigpe (n 43)

48JL Westbrook, ‘Theory and Pragmatism in Global Insolvencies: Choice of Law and Choice of Forum’ (1991) 65 Am Bankr LJ 457, 467 and 468

207