Учебный год 2023 / phd

gazette and filing of the requisite documents with the high court.187 While the appointment of the agent is in accordance with relevant local law, the administration of the bankruptcy estate in the local jurisdiction of Tanzania and Kenya is effected in accordance with the laws of the reciprocating country. This includes proof of debts and distribution of dividends.188 The agent is among other things duty bound to facilitate a local inspection by creditors and proof of debts. The proceeds realised from the local property of the debtor have to be remitted to the officeholder in the foreign proceedings having jurisdiction in the bankruptcy estate. In fact, insolvency proceedings commenced in a foreign reciprocating country are deemed to have the same effect as if they were commenced in a competent local court. Similarly, the debtor and his creditors are deemed to be in the same position and have the same rights and privileges, and are subject to the same disqualifications, restrictions, obligations and liabilities in every respect as if the proceedings had been commenced in the local jurisdiction.189

The law anticipates the occurrence of concurrent insolvency proceedings which are defined as ‘…proceedings instituted concurrently against the same debtor in any two or more reciprocating countries, one of which may or may not be [the local jurisdiction].’190 The procedure for dealing with the concurrent proceedings is as follows.191 Firstly, the country where the proceedings were first commenced, in terms of having issued the adjudication order earlier than any other country, is regarded as having jurisdiction in managing the proceedings over the estate of the debtor and administering the property of the debtor wherever situated.192 Secondly, where there is no adjudication order made or in the event of same dates on which such orders were issued, the jurisdiction and as such the property of the debtor will vest in the reciprocating country which first issued the receiving order.193

187Ibid

188Bankruptcy Act (Tanzania) ss 156 and 157; and Bankruptcy Act(Kenya) ss 157 and 158

189Bankruptcy Act (Tanzania) s 151; and Bankruptcy Act (Kenya) s 152

190Bankruptcy Act (Tanzania) s 161(1); and Bankruptcy Act (Kenya) s 162 (1)

191See the entire provisions in Bankruptcy Act (Tanzania) s 161; and Bankruptcy Act (Kenya) s

162for the relevant procedure for dealing with concurrent proceedings.

192Bankruptcy Act (Tanzania) s 161(2) ; and Bankruptcy Act (Kenya) s 162(2)

193Ibid

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reciprocating countries.198 To be sure, this procedure is mandated by the quest for efficiency and effectiveness in administering, managing and distributing the property of the debtor.

With the above account in mind, it is notable that the cross-border insolvency regime that is founded in the bankruptcy legislation and the BRR made under it, is characterised by the following key features which in a way bring it very close to the universality theory of cross-border insolvency. This is notwithstanding that it is not applicable to all cases of cross-border insolvency of a debtor that involve Tanzania and Kenya. Firstly, the regime as far as is applicable to reciprocating countries is controlled by the law of the country that is deemed to have jurisdiction over the insolvency proceedings of the debtor. It provides for automatic recognition and enforcement of proceedings commenced in a foreign country which is a reciprocating jurisdiction under the law. Notably, this is one principal element of the pure universalism which requires the law of the home country to control all administration of the assets of the debtor irrespective of their location. Secondly, the regime provides for remittance of the proceeds realised from the administration of the property in other jurisdictions (other than one having overall jurisdiction over the estate of the debtor) to the reciprocating jurisdiction having the overall and controlling jurisdiction over administration of the property of the debtor. Indeed, this is exactly what the advocates of universalism argue for. Thirdly, the regime vests controlling jurisdiction in one of the reciprocating countries in which the proceedings were first commenced. It will be noted that under universalism the principle is that one country must have overall and controlling jurisdiction over the other countries. And fourthly, the regime provides a framework for communication between official receivers in a bid to facilitate efficiency in the administration of the insolvency estate. The only notable difference is that while universalism advocates for the ‘home country’199 of the debtor as a country having jurisdiction in insolvency proceedings against

198Official Receiver v Messrs. Savadia & Co 18 EACA 119 (1951)

199According to the existing international insolvency benchmarks, the home country of an insolvent company could be its ‘centre of main interests’ (“COMI”) and not necessarily its place of domicile.

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the debtor, this law as applies in Tanzania and Kenya vests jurisdiction in the country where the proceedings were first commenced. The other possible difference, which may render the regime to be a sort of modified universalism, is the fact that it provides for the possibility of concurrent proceedings which are not categorised as main and secondary proceedings though such categorisation seems to be envisaged in the regime.

So far, it is only Kenya, Uganda and Malawi that are reciprocating countries for Tanzania,200 and only Tanzania and Uganda that are reciprocating countries for Kenya. This has been the status since the colonial days when the law was originally enacted and brought into force before being inherited at independence and recently renamed in Tanzania as the Bankruptcy Act (as opposed to Bankruptcy Ordinance). It must also be stressed that the extension of the application of the cross-border insolvency rules under the bankruptcy legislation to apply to the whole of East Africa was an integral part of the overall early British colonial initiative (dating back to early 20th century) aiming at establishing or improving the overall commercial legal framework in East Africa. The initiative laid the basis for the East African co-operation, firstly as a customs union between Kenya and Uganda in 1917, which the then Tanganyika (now Mainland Tanzania) joined in 1927, the East African High Commission (1948– 1961), the East African Common Services Organisation (1961–1967) and the East African Community (1967–1977).

6.5.2Impact of the Cross-Border Bankruptcy Rules for Cross-Border Corporate Insolvency Regulation

A notable general impact of the application of rules of personal bankruptcy law to cross-border corporate insolvency and in particular the cross-border cooperation procedure is to pull even further the existing law in Tanzania and Kenya towards a universalist approach. This is particularly the case if the

200 The existence of the reciprocal arrangements in bankruptcy proceedings between Tanzania, Kenya

and Uganda can be questioned given the collapse of the East Africa Community in 1977. However, this argument is weak unless it is established that such arrangement had repealed in the respective countries. It is to be noted that Tanzania recently changed the legislation from Bankruptcy ordinance to Bankruptcy Act. In so doing, it did not repeal rules and regulations that were made under the legislation.

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countries under study use the opportunity and conclude as many reciprocal cooperation arrangements with other countries as possible, which is not likely on account of the following. Firstly, the law has long been forgotten, if not abandoned in the statute book, to the extent that in some circles it is being argued that the co-operation arrangements concluded thus far had long ceased to function. And secondly, as is shown subsequently, the current drive for reform has the potential of phasing this law out of operation and existence.

Using the corporate insolvency provisions under the CA 2002 as an illustration of the potential impact, it is important at the outset to reiterate that the law has it that an insolvent company incorporated outside Tanzania may be wound up in Tanzania if it has been carrying on business in Tanzania and it is being wound up in its place of incorporation or in any other country where it has established a place of business.201 Proceedings for the winding up of such a company may be commenced by the official receiver or any of the authorised persons under the provisions of section 281(d) of the CA 2002. It is not however clear if such authorised persons include creditors, administrators and the company itself which as a general rule they are entitled to petition for winding up.

The implication of extending the rules of the law of personal bankruptcy as above discussed would have the following effect whose scope would largely rest on the extent of implementation of the reciprocity requirement. Accordingly, the Bankruptcy Act and BRR will only apply where there is existing reciprocal arrangement between Tanzania and a foreign jurisdiction;202 otherwise the procedure available under the CA 2002 will prevail and govern the proceeding. Thus a foreign office-holder may make an application to require a locally appointed office-holder or official receiver to act as his agent in Tanzania for the purposes of dealing with the affairs of the company in Tanzania as well as its assets. It appears that since the law empowers any authorised person to institute proceedings against such a company, an office-holder appointed in such proceedings would be competent, upon proper application and compliance with

201Text to n 66 above

202Text to n 196 above

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the rules as detailed in the law of personal bankruptcy to act as an agent of the office-holder appointed in a foreign proceeding in the company’s home country or in any other country where the company has established place of business.

The effect of this is that the office-holder in Tanzania will have to cooperate with the foreign office-holder to administer the property of the company in Tanzania. In terms of the bankruptcy legislation and rules made thereunder, this will include to administer proof of debts for onward transmission to the foreign office holder, facilitate creditors’ inspections by inter alia ensuring ease access of relevant information to creditors in Tanzania, such as debtors’ statements of affairs and participation in creditors’ committees meetings, remittances of the proceeds from property situated in Tanzania to the foreign office-holder, and the consequent distribution of dividends to creditors. Such roles will be undertaken using the law of the country where the proceedings were commenced.

The criterion that will be used to determine which foreign proceedings should prevail over the others is the first proceeding to be commenced.203 This seems to be particularly critical given that the CA 2002 recognises proceedings commenced not only in the home country of the company but also in any other country where the foreign company has established a place of business. This has in fact potentially opened the door for controversy including forum shopping, though it has done away with the problem of determining the centre of main interests of the company.

According to the rules governing concurrent proceedings as contained in the bankruptcy legislation and the BRR, the court in Tanzania may, upon an application by creditors, official receiver or other interested parties, make an inquiry as to the convenience of deferring to the foreign proceedings in the foreign jurisdiction.204 The court will have to consider the creditors in terms of their number and value, nature of the property of the company within Tanzania and other factors to determine whether to continue the concurrent proceedings in

203Bankruptcy Act (Tanzania) s 161(2) &(3)

204Bankruptcy Act (Tanzania) s 161(4) ; and Bankruptcy Act (Kenya) s 162(4)

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Tanzania. As it will be recalled from the preceding discussion, this creates a very wide discretion for the court. It is to be noted that in the relevant provision the list of the factors that the court may have regard to is not exhaustive.

More or less similar impact will happen in Kenya as a result of the application of such co-operation procedures which are based on reciprocity. For example, a domestic company being wound up in Kenya on grounds of insolvency may have property in another jurisdiction. Accordingly, it might be in the interests of creditors and other interested parties to have such property administered along with those which are situated in Kenya by the same officeholder appointed by the Kenyan court. Thus, if the other country in which the company has property is a reciprocating country to Kenya, for example Tanzania or Uganda, it will mean that, by virtue of the rules of the law of personal bankruptcy in Kenya, the officeholder will have the right to appoint an agent in the reciprocating country to assist in administering the property situated in such jurisdiction or the officeholder appointed in Kenya may apply directly to the courts of the reciprocating jurisdictions. The reverse of this scenario is also true. 205

The dependence on reciprocity may be viewed as placing significant limitation on the application of these rules to cross-border corporate insolvency proceedings. Since it is only Kenya, Uganda and Malawi that are reciprocating countries to Tanzania and only Uganda and Tanzania are reciprocating countries to Kenya, it means that the regime established by the Bankruptcy legislation and the BRR may have potentially a very limited operation and effect. It means that the common law will continue to apply in proceedings involving Tanzania and non-reciprocating countries. Nevertheless, the application of these rules effectively pulls the legal framework in Tanzania and Kenya for dealing with cross-border insolvency towards universalism and away from a territorialism stance. Indeed, it offers an important basis from which any reform measure may be considered and pursued.

205 Bankruptcy Act ( Kenya) s 115; and Bankruptcy Act (Tanzania) s 115

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6.5.3Effect of the Contemplated Kenyan Reform on the Future of CrossBorder Insolvency Regulation

It is notable that although the Insolvency Bill 2010 seeks to repeal and replace Kenya’s Bankruptcy Act and insolvency provisions under the current Kenyan Companies Act (which is also in the process for repeal), it provides that any regulation or other instrument made or issued and given effect under such laws will continue to have effect as if such regulation or other instrument were made or issued under the proposed insolvency law.206 This means that the BRR, made under the Bankruptcy Act (proposed for repeal by the Insolvency Bill 2010), which regulates the reciprocal cross-border co-operation in matters of insolvency would under transition provisions continue to be operational notwithstanding the repeal of the principal legislation.

The phrase ‘other instrument’ used in the draft Bill is seemingly intended to accommodate things like declarations and forms.207 It is doubtful if such ‘rules and other instrument’ can be applied as such without inconsistencies and tensions given that the basis, namely the Bankruptcy Act, upon which they were founded would no longer be in existence.208 It would have, perhaps, been appropriate for the Bill to provide that such regulations and instrument would apply in so far as is practical and in so far as they are not inconsistent with the Insolvency Bill 2010. There is room for arguing that the adoption of the Model Law would have the effect of rendering the reciprocal arrangement reflected under the BRR as an exception to the adopted Model Law.209 This would mean that the adopted version of the Model Law will apply to the countries that are parties to the arrangement (which include Tanzania and Uganda) only to the extent that does not affect the additional assistance available under the reciprocal co-operation arrangement.

206Insolvency Bill 2010 (Kenya) clause 466(1)

207The Bankruptcy legislation in Tanzania, Kenya and Uganda is rich in statutory documents designed for use in facilitating reciprocal co-operation among contracting member states.

208Notably, the Insolvency Bill 2010(Kenya) does not seek to re-enact the provisions of Bankruptcy Act (Kenya) ss 115,151-164) on the basis of which the BRR was made. However Insolvency Bill 2010 (Kenya) clause 420(2) seeks to re-enact the provisions that apply relevant rules of personal bankruptcy to corporate insolvency.

209Text to n 138 above

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6.6State Owned Enterprises and the Treatment of Cross-Border Insolvency Aspects with Reference to Tanzania

Notably, the law that has been discussed so far, especially so in Tanzania, has hardly been applicable to SOEs. Indeed, until recently, most SSA countries had maintained large and dominant public sector characterised by SOEs.210 Indeed, Tanzania was among such countries and could accordingly be discussed as a representative case to take stock of what was, and is, the implication in SSA of the maintenance of SOEs for cross-border insolvency regulation.

While the Tanzanian government had established many SOEs, which used to obtain loans from inter alia international organisations through bilateral arrangement with the government as the main party and guarantor, the legislation lacked a tailor made provision stipulating how insolvency proceedings involving a SOE could be commenced and conducted.211 Conversely, the executive, through the president and in certain cases responsible Ministers, was and still is empowered to establish, dissolve or reorganise a SOE as it deemed fit and proper.212 This meant that it was and is still not clear in terms of procedure as to how a foreign creditor could proceed against a SOE that failed to settle its outstanding debts.

Likewise, there were glaringly no provisions in other pieces of legislation under which other SOEs were established which were explicitly intended to provide procedures for dealing with insolvent state owned enterprises and their attendant cross-border insolvency aspects.213 It is indeed not surprising that, even the corporate insolvency provisions under the companies legislation that could appropriately be applied in the event of the insolvency of a SOE incorporated under such legislation were not brought into force to deal with affairs of the insolvent public enterprises. Ideally, this experience seems to reflect what has hitherto been described by Harmer as:

210See generally, J Nellis (n 7); and B Mihyo (n 23)

211BS Masoud, ‘Corporate Insolvency Law and Public Enterprises: A Historical Perspective’ [2005] Tanzania Lawyer 23-36

212See for instance Public Corporations Act 1992 (Tanzania) s 4, 50 and 57A

213BS Masoud (n 211)

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…..a strongly held view that a state enterprise, no matter how constructed or administered, is but an agency or branch of the state. Therefore, under this view, the state would be obligated to ensure that all the debts and liabilities of a state enterprise are met in full. Hence, a state enterprise could not, and should not, become bankrupt. Its existence might be terminated by the state, for whatever reason, but the state must meet its outstanding obligations. Accordingly, the possibility of bankruptcy for a state enterprise should not even be remotely suggested.214

The legal framework which was put in place to deal with insolvent SOEs during the privatisation of such enterprises clearly reflected the theory that such enterprises were regarded as agencies or branches of the state and therefore entitled to enjoy the guarantee of the state as far as loans repayment was concerned.215 The clearly set procedures for privatisation of financially distressed state owned enterprises which included liquidation and restructuring did not clearly envisage cross-border issues.216 The procedures allowed the body (i.e the Presidential Parastatal Sector Reform Commission (“PSRC”)) entrusted with such functions and designated as an official receiver for such enterprises pursuant to the Bankruptcy Act,217 to unilaterally write off, reschedule the payment of and suspend the accumulation of interest on any debt of a private creditor, another state owned enterprise or the government.218

Similarly, co-operation in resolving cross-border insolvency issues was and still is not envisaged under the Tanzanian SOE legal regime.219 While the executive has all along been vested with powers to make orders and rules for regulation of the affairs of such enterprise, no such orders or rules have ever been made for regulation of either domestic or cross-border insolvency related issues involving

However, statutory guidelines regarding transfers of employees and

214RW Harmer (n 10) 2574-2575

215See Public Corporation Act 1992 (Tanzania) s 51(6) as amended severally and in particular by Public Corporation (Amendment) Act 1993 (Tanzania)

216Public Corporations (Amendment) Act 1993 (Tanzania) s 43

217The effect of making the PSRC an official receiver in accordance with the Bankruptcy Act (Tanzania) was to make the provisions of the Bankruptcy Act pertaining to official receivership part of the Laws regulating privatisation in Tanzania.

218Public Corporation (Amendment) Act 1993 (Tanzania) s 43

219Public Corporation Act 1992(Tanzania) ss 41and 43

220BS Masoud (n 211); AT Nguluma (n 17) 177

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