Court Halts Bankruptcy Proceedings Against BMK Companies
The executors of the estate of the late Bulaimu Muwanga Kibirige experienced relief as the Commercial Court in Kampala stopped bankruptcy proceedings against BMK Uganda Limited. Yako Bank Uganda Limited had petitioned the court to declare BMK Uganda Limited bankrupt due to an unpaid debt of 1.5 billion Ugandan shillings.
On May 30, 2024, Justice Cornelia Sabiiti Kakooza dismissed the bank’s petition on a technicality. She explained that Sarah Mushabe, the branch manager, did not have the authority to swear an affidavit for the bank as required by the Insolvency Regulations.
“The affidavit verifying the bank’s petition is defective. Therefore, a petition for liquidation cannot stand without a supporting affidavit as evidence, and hence the entire petition stands dismissed with no orders as to costs,” Justice Kakooza ruled.
The judge highlighted that Mushabe, who provided an affidavit supporting the bank’s petition, was not a director, company secretary, or authorized person by the company to make such an affidavit. This made the affidavit invalid under Regulation 87 (2) (a) of the Insolvency Regulations, 2013.
However, Justice Kakooza agreed with Patricia Kongai that the statutory demand was indeed served to BMK Uganda Limited. She was convinced by evidence showing that one of BMK’s directors had instructed a known office administrator, Daphine, to receive the demand on his behalf. Additionally, the service was done through BMK’s registered mail.
A statutory demand is a formal request for debt payment served to a creditor.
During the court hearing, Mushabe argued that BMK owed the bank 1.5 billion Ugandan shillings, including the loan principal and 2% monthly interest. She stated that BMK took a loan of 1.4 billion shillings on March 11, 2022, with an agreement to pay it back within six months at 2% interest per month. BMK repaid 92.9 million shillings, leaving a large unpaid balance.
“The outstanding debt has now accumulated to 1.5 billion shillings, which remains due despite several demands and reminders,” Mushabe stated.
She also mentioned that the bank issued a statutory demand to BMK on September 19, 2022, but BMK failed to pay the debt, leading the bank to start bankruptcy proceedings. Mushabe pointed out that the properties pledged as security were already encumbered with charges from other creditors, making them insufficient to cover the debt.
In response, BMK’s directors asked the court to dismiss the bank’s insolvency petition, arguing that it was premature due to improper service of the statutory demand. The directors, Harunah Kalule Kibirige, Jamiel Kasujja Muwanga, Ali Kibirige Muwanga, and Haruna Kalule Muwanga, claimed that the bank did not serve the statutory demand to BMK’s registered offices or business location as required by law.
Ali Kibirige Muwanga swore an affidavit asserting that only BMK’s directors, secretaries, or principal officers are authorized to receive official documents unless another person is authorized in writing by the company. He noted that BMK only learned about the statutory demand after the insolvency proceedings had begun.
Thus, the Commercial Court’s decision to halt the bankruptcy proceedings against BMK Uganda Limited was based on procedural technicalities and improper affidavit submission by Yako Bank.
