Учебный год 2023 / phd

following part therefore takes stock of the state of the law in cross-border insolvencies in SSA countries using Tanzania and Kenya as case studies whilst taking account of the absence or rarity of the application of the law in relation to cross-border insolvencies in the countries under study and the signs of potentialities of a new chapter of gradual involvement of SSA countries in incidences of cross-border insolvency.

6.3The International Character of Tanzania’s Insolvency Related Legislation

6.3.1Cross-Border Insolvency Aspects in Tanzania’s Inherited Colonial Legislation

Cross-border insolvency aspects of the Tanzanian insolvency law are supplemented by the English common law, which is applicable on the basis that the common law is one of the sources of law in Tanzania. As noted in the previous chapter the basic structure of the law relating to insolvency traces its origin from the law that was inherited from the British colonial administration, which was mainly contained in the Companies Ordinance and the Bankruptcy Act (which was formerly known as the Bankruptcy Ordinance).49

The law lacked an explicit provision for dealing with cross-border insolvency, although it is understandable that an insolvent foreign company could, on the discretion of the court, be subjected to winding up insolvency proceedings as an unregistered company ‘… incorporated outside Tanzania.’50 There were no legislative criteria on the basis of which the court could exercise its discretion. Perhaps by borrowing from the English common law, the court could potentially invoke, among other things, the criteria of the existence of a sufficient connection between the foreign company and the local jurisdiction in Tanzania and the presence of persons in Tanzania concerned or interested in the

49Text to n 14 in chapter 5

50Companies Ordinance (Tanzania), s 314-315. Section 315 is similar to Companies Act 1929 (English), s 338 which in part read: ‘Where a company incorporated outside Tanzania which has been carrying on business in Tanzania ceases to carry on business in Tanzania it may be wound up as an unregistered company under this Part of this Act notwithstanding that it has been dissolved or otherwise ceased to exist as a company under or by virtue of the laws of the country under which it was incorporated.’

208

proceedings over whom it may exercise its jurisdiction.51 The outcome of the application of such criteria could not necessarily be the same as it would have been in England. The operation of the principle requiring consideration of the local circumstances and that of the local inhabitants could have mandated a different outcome.52

The other thing that was not explicit in the legislation was the treatment of crossborder insolvency issues in the local insolvency proceedings. A typical example in this regard is the treatment of foreign creditors along with the local ones in the local proceedings and recognition of foreign insolvency proceedings and office holders appointed in such proceedings. Although it was clear that insolvent winding up proceedings could be commenced by creditors or the company itself, it was not explicit whether foreign creditors could be brought within the ambit of such a provision. It could however be argued that the provision did not have anything to suggest that the intention was to render foreign creditors unable to commence such proceedings. In any case, such gaps were indeed the potential areas where in appropriate cases the common law could be adopted to resolve cross-border insolvency problems that emerge,53 subject however to due consideration being given to the local circumstances of the countries under study and that of their local inhabitants.

It is interesting that while the Companies Ordinance did not contain provisions on cross-border insolvency issues, the Bankruptcy Act was and still is relatively comprehensive in terms of its approach in handling cross-border issues relating to personal insolvencies, especially co-operation between courts and office holders in respect of the proceedings originating in countries having reciprocal co-operation with Tanzania. The history of the imposition of English law in the colonies shows that such development owed its origin from the early cooperation measures on enforcement of orders given by the English court within

51Text to n 36 and 39 in chapter 5

52Text to n 9 and 10 in chapter 5. See also Obongo v Municipal Council of Kisumu [1971] EA 91(CA) discussed in text to n 125 in chapter 5

53Text to n 76 in chapter 5

209

the United Kingdom and a requirement of assistance to other British courts in the context of personal insolvency.54 Such developments were consequently incorporated in the bankruptcy legislation as a reaction to the surge in numbers of personal insolvencies affecting assets located in the Commonwealth jurisdictions.55 The underlying rationale of the incorporated provisions from which the relevant provision in Tanzania’s bankruptcy legislation56 seems to trace its origin, was ‘to co-ordinate proceedings and [enable] the courts to assist in the management of bankruptcy proceedings within their own jurisdictions. The making of an order seeking the aid of another court was deemed sufficient authority to enable the other court to exercise the jurisdiction it would if the matter were before it for consideration.’57

In addition, the Bankruptcy Act also devotes a whole part of the legislation and the rules, namely, the Bankruptcy (Reciprocity) Rules (“BRR”),58 made under section 164 of the Act, to reciprocal co-operation in matters of bankruptcy proceedings. Although the repealed Companies Ordinance had no explicit provision on cross-border insolvencies, as is the bankruptcy legislation did, it could be argued that section 258 of the Companies Ordinance had the effect of importing and applying the relevant parts of the bankruptcy legislation and the BRR to cross-border corporate insolvency proceedings involving any reciprocating jurisdiction.59

54PJ Omar, ‘Developments in Cross-Border Insolvency Practice in the United Kingdom’ (2002)

14Bond LR 347, 362-363

55PJ Omar (n 54)

56Bankruptcy Act (Tanzania) s 115 (Tanzania). The marginal note to this provision reads: ‘court to be auxiliary to other reciprocating courts.’

57PJ Omar (n 54) 363

58Bankruptcy Act (Tanzania) Part IX entitled ‘Provisions for Reciprocity with Other Countries’ and containing sections 150-163, which is the same as Bankruptcy Act (Kenya) Part IX entitled ‘Provisions for reciprocity with Other Territories.’ See also Bankruptcy (Reciprocity) Rules G.N. No. 38 of 1932(Tanzania) which is the same as Bankruptcy (Reciprocity) Rules (LN 143/1962) (Kenya)

59The marginal note to the repealed Companies Ordinance (Tanzania) s 258 read: ‘Application of bankruptcy rules in winding up of insolvent company.’ Notably, this provision has now been reenacted as Companies Act 2002 (Tanzania) s 366 (Tanzania). It is the same as the provision found in Companies Act (Chapter 486 of Laws of Kenya) s 310. Insolvency Bill 2010 (Kenya) clause 420(2) seeks to re-enact the same provision.

210

The above line of argument appears to have the following implications. One implication is that, not only were the procedures for aiding foreign insolvency proceedings applicable to personal cross-border insolvency, but also to crossborder corporate insolvencies. The application of the rules led to expansion and enlargement of the scope of the law in addressing international elements of corporate insolvencies. Indeed, such co-operation and reciprocal arrangements provisions on cross-border bankruptcy under the bankruptcy legislation and the BRR could be read into the Companies Ordinance although there was no explicit provision requiring reciprocity in matters of aiding or acting auxiliary to foreign insolvency proceedings. Actually, if the BRR were applicable, the implication was to reduce the scope of the common law that would otherwise apply in corporate cross-border insolvency matters involving Tanzania and a reciprocating country. However, the common law will potentially still have wide space in the proceedings involving Tanzania and a non-reciprocating country.

6.3.2 Legal Developments in Cross-Border Insolvencies in Tanzania

The Companies Act 2002 repealed and replaced the Companies Ordinance. This new Act (“CA 2002”) overhauled the insolvency procedures for dealing with an insolvent company, which now refer not only to the inability of a company to pay its overdue debts but also a situation where the value of the company’s assets is less than the amount of its liabilities, taking into account the contingent and prospective liabilities of the company.60 In effect, the Act institutionalises the modern concept of rescue with regard to corporate insolvency, modelled on the UK’s Insolvency Act 1986.61 Apart from accommodating the old and common procedure, such as the winding up of an insolvent company, the CA 2002 introduces two new forms of dealing with an insolvent company in a manner that has potentials for the rescue of the business of the company. These are administration and company voluntary arrangements, which can be invoked in the event of impending or actual insolvency of a company.62

60 Companies Act 2002 (Tanzania) s 280; and S Rajani and F Ringo, ‘Tanzania Updates Corporate Insolvency Legislation’(2007) 23 IL and P 76

61Companies Act 2002 Part VII ; and S Rajani and F Ringo (n 60) 76 62 Companies Act 2002 (Tanzania) s 235

211

While the CA 2002 has detailed provisions stipulating procedures for the rescue of an insolvent company ‘…which compare well with the existing legislation of more developed countries...,’63 it is not clear and elaborate in the way that it attempts to address cross-border insolvency issues.64 Notably, whereas the law was enacted about five years after the promulgation of the UNCITRAL Model Law on Cross-Border Insolvency, no express reference is made by the law to the Model Law and other transnational legal sources in the field of insolvency law generally.65 The only directly relevant provisions of the CA 2002 read thus:

275. The High Court shall have jurisdiction to wind up any company registered in Tanzania and a body corporate as mentioned in section 279(2).

279(2) A body corporate may also be wound up by the court if incorporated outside Tanzania and carrying on business in Tanzania and winding up proceedings have been commenced in respect of it in the country of its incorporation or in any other country in which it has established a place of business.

281.-(I) 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 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:

Provided that –

(a)……..

(b)……..

(c)……..

(d) a petition for the winding-up of a body corporate on the ground mentioned in section 279(2) may be presented by the official receiver as well as by any other person authorised to do so under the provisions of this subsection, but the court shall not make a winding-up order on a petition presented by the official receiver unless it is satisfied that the

63Ibid

64There are apparently only three sections that scantly provide for aspects which could be linked with cross-border insolvency only in respect of winding up of a company. It could be argued that effective application of such provisions may depend heavily upon the quality and experience of judges, or in the absence of that experience, upon the quality of the advice that courts are able to draw upon in making their decisions. For this line of reasoning, see RA Tomasic, ‘The Conceptual Structure of China’s New Corporate Bankruptcy Law’ in R Parry, Y Xu, and H Zhang, China’s New Enterprise Bankruptcy Law: Context, Interpretation, and Application

(Ashgate, England 2010) 30

65S Rajani and FS Ringo (n 60). Interestingly, Companies Act 2002(Tanzania) s 2 makes reference to international accounting and auditing standards and practice with respect to generally acceptable principles of accounting applicable in Tanzania. As discussed in chapter 3, international insolvency standards as is the case for the international accounting standards, among others, are part and parcel of the international financial architecture that was introduced in the aftermath of the East Asia financial crisis.

212

liquidator or provisional liquidator of the body corporate in the country where winding-up proceedings have been commenced in respect of it has in the manner prescribed required the official receiver to present the petition.66

Furthermore, the Company Insolvency Rules 2005 (“CIR 2005”)67 made under the CA 2002 do not provide for cross-border insolvency issues, though a critical reading of the scant provisions on cross-border insolvency in the Act provides an impression that matters of details in so far as insolvency and especially crossborder insolvency are concerned would have arguably been addressed by the rules.68 Despite such weaknesses, the insolvency related provisions under the CA 2002 mark a significant development from the previous companies’ legislation. This is regardless of the fact that the provisions have, since they were brought into force in 2005, remained in disuse.

In the absence of a clear and comprehensive law on cross-border insolvency, a number of issues may arise: whether the Tanzanian court may extend, and to what extent it is likely to offer, recognition and co-operation to foreign proceedings in appropriate circumstances; whether the Tanzanian court is prepared to defer to exterritorial insolvency jurisdictions in cross-border insolvency cases involving multinational enterprises having investment in Tanzania; whether foreign creditors can prove in local proceedings and rank equally with the local creditors; and whether the foreign creditors can commence insolvency proceedings against a debtor in a Tanzanian court. These issues

66Companies Act 2002 (Tanzania) s 275, 279(2), and 281(1)(d)

67The Companies (Insolvency) Rules 2005 (Government Notice No. 43 of 11/2/2005)

68S Rajani and FS Ringo (n 60); and Companies Act 2002 (Tanzania) s 479(I) provides that ‘ The Minister may make rules for carrying into effect the objects of this Act and for any matter or thing which by this Act is to be or may be provided for by rules. Any rules made under this section which are in the nature of rules of court shall not be made except after obtaining the advice of the Chief Justice.’

Companies (Insolvency) Rules 2005 rr 89, 90 and 91 which seem to exclude cross-border insolvency elements which are explicit in Companies Act 2002 (Tanzania) ss 275, 279 and 281. It is important to note that other laws relating to foreign investment enterprises are silent on the treatment of cross-border insolvency, though they arguably envision general principles that would need to be taken into account in dealing with cross-border insolvency involving a foreign enterprise. See for instance, Tanzania Investment Act 1997(Tanzania).

213

pinpoint areas that may need to be filled up by the application of the common law subject to the extent permitted by the local circumstances.69

6.3.2.1Treatment of Foreign Companies and Creditors in Domestic Proceedings

It is not quite clear if the statutory law as it stands allows domestic winding up proceedings to be commenced in respect of a foreign company which is unable to pay its debts - if for instance it is either proved to the satisfaction of the court that the company is unable to pay its debts as they fall due or it is proved to the satisfaction of the court that the value of the company’s asset is far less than the amount of its liabilities.70

The law has it that winding up proceedings may be commenced by ‘the company or by any 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.’71 It is however not clear that the meaning of ‘any creditor or creditors’ in the commencement of the proceedings in Tanzania and the consequent ranking and proof of debts and claims is meant to include both local and foreign creditors.72 The legal framework is also not explicit that in a single Tanzanian proceeding foreign creditor claims can be admitted to proof and treated the same as equivalent ranking local claims. Conversely, the little experience available thus far suggests that there is no such discrimination between foreign and local creditors whatsoever.73

69n 53 above

70Companies Act 2002 (Tanzania) ss 275, 279(1)(d), 279(2), and 280

71Companies Act 2002 (Tanzania) s 281(1)

72It is to be noted that it is not uncommon in other jurisdictions for the law to provide clearly that a non-national or foreign company will be treated in the same way as national or domestic companies. See K Anderson, ‘The Cross-Border Insolvency Paradigm: A Defense of the Modified Universal Approach’ (2000) 21 U Pa J Int’l Econ L 679, 730 quoting a provision from the Japanese Bankruptcy and Composition Acts (art 2 and 11 respectively) which read: ‘An alien or foreign corporation shall have the same status as a Japanese national or Japanese corporation in regard to bankruptcy, provided however, that this shall apply only when Japanese nationals or Japanese corporations have the same status under the native laws of the alien or the foreign corporation.’ As Anderson puts it ‘[t]he obvious purpose of this section was to protect Japanese citizens (both natural and corporate) from discrimination by foreign countries.’

73See rulings by Kalegeya J in Fahari Bottlers Ltd v The Registrar of Companies and NBC (1997) Ltd. and Others Misc. Civil Cause No. 155 of 1998 (High Court of Tanzania) (unreported) dated 26 October 2000 and 21 November 2000 respectively. Full and non-discriminatory involvement of foreign creditors (i.e IPBCIL and its associates which included Pepsico

214

but which is held not to be carrying on business in Tanzania or having an establishment.79

It is also of interest to see if the courts in considering whether or not to recognise foreign winding up proceedings could be guided by section 11 of Tanzania’s Civil Procedure Code Act 1966, which provides for principles to be taken into account in recognising and enforcing a foreign judgment.80 These include, jurisdictional competence of the foreign court involved; merits of the decision involved; whether or not the decision was founded on a correct view of international law; whether it entails a refusal of recognition of Tanzanian law in a case in which the law was applicable; failure of the foreign proceedings to adhere to natural justice; and fraud.

Given the lack of details in a number of respects, it is clear that there is a wide scope for the common law to apply to fill in gaps in appropriate cases. However, the extent to which the relevant common law might be allowed to apply depends on several factors as discussed in chapter five.81 In the light of what emerges from the debate on the competing theories, and the international insolvency benchmarks this situation can arguably be described as contributing to uncertainty and unpredictability of outcome which may increase transactional costs. It must be stressed however that no approach, as one may gather from the cross-border insolvency theories’ debate discussed in chapter two, would necessarily be any more predictable and certain.

Arguably, the key standards and principles of the bilateral investment treaties ought to be reflected in the treatment of foreign companies in insolvency proceedings. This is in particular where a foreign company’s home country and Tanzania, as a host country, are contracting parties to the treaty between the two countries. Arguably, on these aspects the law is not clearly and unambiguously

79Cf. UNCITRAL Model Law and the Kenyan Insolvency Bill (n 145148) below

80Cf. Guide to Enactment of UNCITRAL Model Law para 125, whereby ‘…the conditions for recognition do not include those that would allow the court…to evaluate the merits of the foreign court’s decision…’; and text to n 129 below

81See text to n 9-11 in chapter 5 and text to part 5.6 in chapter 5

216

consistent with the commitments arising from such treaties to which Tanzania is a party. Indeed, if the common law were to apply unrestrictedly, it would have the effect of pulling quite significantly the domestic law towards the direction of modified universalism and enhance the compatibility of the law in Tanzania with its commitments arising from the bilateral investment treaties and other similar arrangements it has concluded thus far. As noted earlier and extensively discussed in chapter five, the application of the common law and its potential outcome in a given cross-border insolvency case cannot be ascertained.

6.3.2.2Co-operation with and Recognition of Foreign Insolvency Proceedings

The CA 2002 seems to accord recognition to foreign winding up proceedings commenced in the debtor company’s place of incorporation or any other country where the company has an established place of business and where there is proof of authorisation of the official receiver or any authorised person under the law to present a petition for the commencement of the proceedings in Tanzania.82 The effect of this is the grant of a winding up order by the court and thus commencement of the proceedings. Upon such proof, the official receiver may act for and on behalf of a foreign insolvency administrator in the conduct of such proceedings in Tanzania. However, the construction of the relevant provision suggests that it is at the discretion of the court to make an order commencing winding up proceedings against the company in Tanzania.

It therefore means that the CA 2002 enables an officeholder appointed in foreign proceedings to cause commencement of insolvency winding up proceedings of a foreign company in Tanzania as a host country of a foreign investor from a foreign home country. This is achieved by such a foreign office holder requiring the official receiver in Tanzania to present the petition for the winding up of the company on the grounds already stated above. The construction of the relevant provision suggests that evidence of such authority and appointment to present such petition is crucially important for the winding up order not to be refused.83

82Companies Act 2002 (Tanzania) s 281(1)(d) reproduced verbatim in text to n 66 above

83The law does not provide an indication of instances on the basis of which an application for the commencement of proceedings against a foreign company may be refused other than a lack

217