Wakilii

Kabiito Karamagi and Donald Nyakairu (The Receivers Managers of Spencon Services Limited-In Receivership) v Musisi (MISCELLANEOUS CAUSE NO. 80 OF 2017)

High Court · [2020] UGHCCD 166 · 2020 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application by receivers/managers for court directions under the Insolvency Act, heard exparte after proof of substituted service
Decision
Sale transaction set aside; respondent ordered to pay monetary value of asset with interest and costs

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court set aside a sale of a vibro roller executed shortly before receivership where the property was grossly undervalued and the consideration was not paid into the company's account. The respondent was ordered to pay the monetary value of the asset as determined by the receivers, with interest at 10% per annum.

Outcome

Sale transaction set aside; respondent ordered to pay monetary value of asset with interest and costs

Facts

Kabiito Karamagi and Donald Nyakairu were appointed receivers/managers of Spencon Services Limited by its creditors. Upon taking over management, they discovered that nearly all valuable company assets had been sold within 12 months before receivership commenced, including a Dynapac CA511 Vibro Roller sold to Musisi Samuel for UGX 21,000,000. At the time of the transaction, the company had charged all its assets to creditors as security and was unable to pay its debts. The sale was executed by persons unknown to company staff, and the consideration was deposited into the account of Sanghani Manoj Kumar Godhandas, a person unknown to the company, rather than the company's own account. The respondent claimed he purchased the machinery as scrap, was issued a receipt bearing the company name, and was instructed by the company to deposit money into the specified account. The receivers contended there was no evidence the transaction was properly approved or that proceeds benefited the company.

Issues

  1. Whether a sale of company assets executed within 12 months before receivership, at an alleged undervalue and with consideration paid to a third party account, should be set aside.
  2. Whether the respondent was a bonafide purchaser for value entitled to retain the asset or receive a refund of the purchase price.

Orders

  • The sale of the Dynapac CA511 Vibro Roller to the Respondent is set aside.
  • The Respondent shall pay to the Applicants the monetary value of the suit property as at the time of the sale as determined by the Applicants.
  • Interest at 10% per annum is awarded from the date of this ruling until payment in full.
  • In case of failure to pay within three months of this ruling, the Applicants may execute against the Respondent to recover the same.
  • The Applicants may also apply for committal of the Respondent in case of failure to comply.
  • Costs of this application are awarded to the Applicants.

Rules and key headnotes

Insolvency — Receivers' Powers — Court Directions
On application of a receiver, the court may give directions on any matter concerning the functions of the receiver under Section 195(1) of the Insolvency Act 2011.
Insolvency — Antecedent Transactions — Sales at Undervalue
Where company property is sold within 12 months before commencement of receivership at a grossly undervalued price to the detriment of the company and its creditors, and there is no demonstration that the purchaser acquired the property at market value, the court will set aside such transaction as improperly executed.
Company Assets — Unauthorised Dispositions — Receivers' Remedies
Where a company sale transaction lacks evidence of proper company authorisation, the consideration is not paid into the company account but to an unknown third party, and the persons executing the sale are strangers to the company, the receivers may obtain court directions setting aside the transaction and requiring payment of the asset's monetary value.

Legislation cited (5)

Full judgment

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Kabiito Karamagi and Donald Nyakairu (The Receivers_Managers of Spencon Services Limited-In Receivership) v Musisi (MISCELLANEOUS CAUSE NO. 80 OF 2017) [2020] UGHCCD 166 (11 June 2020)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.