NKUMBA UNIVERSITY

SCHOOL OF LAW

COURSE : BACHELOR OF LAWS

INDEX NO : 2021/AUG/LLB/B229180/DAY

STUDENT NO : 2100100710

YEAR OF STUDY : 4 SEM 1

COURSE UNIT : CIVIL PROCEDURE 1

COURSE LECTURER : COUNSEL CORNELLIUS MUKIIBI

QUESTION

If a company is in liquidation does it have legal capacity to sue or be sued in its own name?

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A company can be defined as an artificial legal and separate entity and distinct from its members as per lord
ATKIN IN SALOMOND V SALOMOND . Section 1 Companies Act, 2012 defines a company as one formed
and registered under the Act or an existing on or re-registered company under the Companies Act. Order 29 of
the Civil Procedure Rules provides that companies become a corporate body and can sue or be sued. This
was also discussed in the case of Leah Associates Ltd V Bunga Hill House.

It is important to draw a distinction between winding up and liquidation. Liquidation is the process by
which a company is dissolved and ceases to be a going concern. In winding up, the company’s business is
closed down, its assets are sold off, the creditors are paid and the balance is distributed to the members and at
the end of the whole process the company ceases to exist and according to BANK OF ETHOPIA V
NATIONAL BAQNK OF EGYPT AND LIQUOR , such a company as stripped off the register by registrar
cannot not bring any suit in its names and as well cant be sued. Section 57of the Insolvency Act provides for
the modes of liquidation. These are; by court, voluntary liquidation or liquidation subject to supervision
of the court.

According to Section 60(2) of the Insolvency Act1, the corporate status and powers of the company shall not
be withstanding anything contrary to its articles, continue until its dissolved. Section 270 (2) of the Companies
Act2 provides for the same that the corporate status and powers of the company shall, notwithstanding anything
to the contrary in its articles, continue until its dissolved Therefore, where the company is in liquidation, it can
sue or be sued and it will be liquidator to appear before court on behalf of the company. In Greenland Bank ltd
& Anor V Fiba Coffee (u) ltd v3, court found that Bank of Uganda, which was the statutory liquidator of
Green Land Bank pursuant to Section 31(2) (e) of the Financial Institutions Act Cap 57 was the right party
entitled to conduct the defence of the 1st defendant4.

The Insolvency Act under S. 97 (1)(c) is to the effect that; “At the commencement of liquidation proceedings,
execution or other legal process shall not be commenced or continued and distress shall not be levied
against the company or its property”. This implies that a company while during its liquidation cannot be
sued. This was also affirmed in the case of Niwamanya v Happy & 4 Others5 where Stephen Mubiru J stated
that “It is trite that insolvency proceedings are a collective debt collection mechanism through which an

1
Cap 108
2
Cap 106
3
Civil Suit No. 104 of 2012
4
Section 99 of the Financial Institutions Act Cap 57
5
(Civil Suit 582 of 2022) 2024 UG CommC 110 (20 April 2024)
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insolvent debtor’s assets are pooled together for the benefit of all the creditors. Because liquidation seeks to
achieve equitable treatment among creditors and to maximize the assets to be distributed to creditors,
individual remedies are no longer available once it is commenced. According to section 97 (1) (c) of The
Insolvency Act, at the commencement of liquidation, proceedings, execution or other legal process should
not be commenced or continued and distress should not be levied against the company or its property.”

However, Section 97 subsection (2) provides that Nothing in this Act shall prevent the exercise of a power of
enforcement of a charge over property, subject to compliance with section 11. In African Textile Mill
Limited (in liquidation) v Co-operative Bank Limited (in liquidation) 6 The liquidator wants to know, for
instance, whether it is lawful and justifiable for the Respondent to enforce its mortgage during the liquidation of
the Applicant company and whether or not it is lawful for the Respondent, having submitted to the jurisdiction
of Court in the civil suits to which this application relates can enforce its rights under the mortgage in respect of
the mortgaged property.

Any claim against the corporation undergoing liquidation which is pending adjudication or has not been
crystallized as of the insolvency commencement date is known as a contingent or disputed claim. Contingent
liability depends on a currently unknown outcome, but one that could change a potential debt into an actual
debt. Where a claim is subject to a contingency or is contingent at the date of the commencement of the
liquidation, such as a claim for damages, or for some other reason the amount of the claim is not certain, section
8 of The Insolvency Act requires the liquidator to either; (a) make an estimate of the amount of the claim; or
(b) refer the matter to the court for a decision on the amount of the claim. If a lawsuit against a corporation
undergoing insolvency results in a judgment or settlement, the claimant would be considered a creditor and
could potentially receive compensation from the corporation’s remaining assets. 7 And in REPUBLIC OF
UGANDA V RIFT VALLEY RAILWAYS(UG) ltd RVR INVESTMENT(PTY) LTD it was held that section
97(1) prohibits the commencement or continuation of proceedings against a company under liquidation

Conclusively, a company in liquidation can both sue or be sued, but there is a specific legal parameter that
govern these actions and a liquidator is the only who can act for the company as its agent when in the course of
liquidation

6
(HCT-00-CC-CS-020 of 2005 )
7
Regulation 179 (1) of The Insolvency Regulations, 2013
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 BIBIOGRAPHY

The Companies Act Cap 106

Insolvency Act Cap 108

The Insolvency Regulations, 2013

TEXT BOOKS

INSOLVENCY BY NERIMA.

CASES

Salomon V Salomon & Co Ltd [1897] AC 22

Niwamanya v Happy 4 Others(Civil Suit 582 of 2022) 2024 UGCommC 110 (20 April 2024)

African Textile Mill Limited (in liquidation) v Co-operative Bank Limited (in liquidation) (HCT-00-CC-
CS-020 of 2005 )

Food Controller –Vs- Cork [1923] AC 647 (at 670 – 671)

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