With the expansion of Uganda’s economy, the need for a comprehensive legal structure dealing with insolvency
[1] has become a priority of the country’s legal reform efforts. This is in recognition that efficient insolvency laws are perceived by the investment community as an essential part of a country’s commercial law system.
Where the process of dealing with insolvency is inefficient, non-viable businesses linger for years. This results in productive assets such as buildings and manufacturing equipment sitting dormant and unproductive. The capital invested or loaned to finance those activities remains tied up in these dormant assets to the detriment of the lending and investing community. Moreover, human capital is also not efficiently reallocated from non-viable businesses to productive ones.
[2]There is a general consensus among the country’s business and legal communities that Uganda’s current legal framework laws in the area of bankruptcy are out-of -ate and in need of revision. The laws are found in various provisions of existing statutes rather than one comprehensive law. As a result, existing bankruptcy laws are generally not used in the country. If companies have financial problems, they do not file for bankruptcy – they simply close the doors.
A general perception among attorneys practicing in the area of insolvency law is that a new insolvency statute is long overdue. As a result of this perceived need for updating the laws in the area of insolvency, there has been an extensive amount of work on a new insolvency law that will combine the various forms of relief available into one statute.
Cases under this new law will be dealt with by the country’s relatively new Commercial Division of the High Court (the Commercial Court). While substantial work remains to complete passage of the new laws and implement its structures through the institutions responsible for its function, those efforts appear to be moving forward positively. These efforts are well directed and should continue to be supported by the development community.
Notwithstanding the healthy ranking afforded Closing a Business in Uganda, this category similarly falls at the bottom of the BizCLIR indicator scores. Substantial reforms are necessary in all aspects of Closing a Business. As detailed in this chapter, reforms will begin with enactment of the Draft Insolvency Law, which is recommended to take place as soon as possible.
[1] The terms “bankruptcy” and “insolvency” are used interchangeably in this report, depending on the context, to refer to both an individual’s and company’s inability to pay debts or the process and the laws under which the legal system deals with this inability.
[2] World Bank, Doing Business 2008 – Uganda (2007), at 47.
