Wakilii

Kigongo v Mosa Courts Apartment Ltd (Company Cause No. 01 of 2015)

High Court · [2016] UGHCCD 11 · 2016 Petition Granted — Unfair Prejudice Established AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Company petition for winding up and unfair prejudice relief under Companies Act 2012
Decision
Petitioner's shares to be purchased by company at par value; petitioner awarded 15% of profits from date of exclusion; winding up refused

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The High Court held that a minority shareholder who was excluded from management of a family company had suffered unfair prejudice under Companies Act 2012 section 248. The court ordered the company to purchase the petitioner's 15% shareholding at par value and pay her 15% of profits from the date exclusion began. The petition for winding up was refused as the company remained solvent and profitable. The court also held that the Companies (Winding Up) Rules were not saved by the Companies Act 2012 and that Civil Procedure Rules applied to fill the procedural vacuum.

Outcome

Petitioner's shares to be purchased by company at par value; petitioner awarded 15% of profits from date of exclusion; winding up refused

Facts

Mosa Courts Apartment Ltd was incorporated in 1997 as a family company with two shareholders: husband Hajji Moses Kigongo holding 85% and wife Olive Kigongo holding 15%. Both served as directors and were involved in daily management. In 2011, Hajji Kigongo unilaterally removed Olive from management by taking away company cheque books, books of accounts, and records, and employed staff reporting exclusively to him. Olive was denied access to company property including vehicles and telephones. She was not invited to board or general meetings thereafter. Hajji Kigongo held meetings alone, appointing a company secretary, opening dollar accounts, and making himself sole signatory. Olive received no dividends or payments since incorporation. The company articles of association provided for both shareholders to participate in management. The company was financed through debt rather than shareholder capital contributions. No evidence was adduced by the respondent proving the petitioner mismanaged company finances as alleged.

Issues

  1. Whether the petitioner is a member of the company with locus standi to file the petition.
  2. Whether the affairs of the company are being conducted in a manner oppressive and prejudicial to the petitioner.
  3. What are the available remedies to the parties under the circumstances?
  4. Whether the petitioner's affidavit in rejoinder is admissible.

Orders

  • Petition allowed in part.
  • Respondent company to purchase petitioner's 15 shares at UGX 1,000,000 per share.
  • Company's capital to be reduced accordingly.
  • Respondent company to pay petitioner 15% of profits made from 1 January 2011 to date of judgment.
  • Report of implementation to be communicated to court within two months.
  • Petition for winding up refused.
  • Costs awarded to petitioner to be paid by respondent company.

Rules and key headnotes

Statutory Interpretation — Effect of Repeal — Saving of Subsidiary Legislation under Interpretation Act
Where an Act is repealed and re-enacted, subsidiary legislation made under the repealed Act remains in force under Interpretation Act section 12 only if the repealed provisions are re-enacted in the new Act and the subsidiary legislation is not inconsistent with the new Act. Where the new Act expressly saves certain subsidiary legislation but omits others, the omitted rules are deprived of their statutory base and cease to have force of law.
Civil Procedure — Applicable Rules — Procedure for Company Petitions
Where the Companies Act 2012 repealed the Companies Act Cap 110 and did not save the Companies (Winding Up) Rules, and the new Act provides that the Insolvency Act applies to winding up procedure, the Civil Procedure Rules apply to fill procedural gaps in company petitions that do not concern insolvency proceedings.
Company Law — Membership — Methods of Becoming a Member
There are two methods of becoming a company member: first, by being a subscriber to the memorandum of association at incorporation, in which case entry on the register of members is not a condition precedent to membership; second, by acquiring shares after incorporation, in which case both an agreement to purchase shares and entry on the register of members are mandatory requirements.
Company Law — Unfair Prejudice — Standing to Petition under Companies Act 2012 Section 248
Only a member of a company may petition court for orders under Companies Act 2012 section 248 on grounds of unfair prejudice. A subscriber to the memorandum of association is a member with locus standi to petition regardless of whether they paid for their shares.
Company Law — Unfair Prejudice — Test for Unfair Prejudicial Conduct
To succeed under Companies Act 2012 section 248, a petitioner must prove conduct that is both prejudicial to their interests as a member and unfair. Prejudice must adversely affect the value or quality of the shareholder's shares. Unfairness is judged objectively by the standard of what a hypothetical reasonable observer would regard as unfair in the context of the commercial relationship and the articles of association. It is not necessary to prove bad faith or intention to cause prejudice.
Company Law — Unfair Prejudice — Exclusion from Management as Unfairly Prejudicial Conduct
Exclusion from management constitutes unfairly prejudicial conduct where there is a legitimate expectation of participation in management arising from the articles of association or the nature of the company as a family or quasi-partnership company. Unilateral removal of a minority shareholder-director from all company affairs, denial of access to company records and property, failure to invite them to meetings, and holding meetings without proper notice all constitute conduct unfairly prejudicial to the member's interests.
Company Law — Remedies for Unfair Prejudice — Court's Discretion under Section 250
Where unfair prejudice is established, the court has discretion under Companies Act 2012 section 250 to order the purchase of a minority shareholder's shares by the company itself and reduction of capital accordingly, together with payment of a proportionate share of profits from the date the prejudicial conduct began. Winding up is not an appropriate remedy where the company is solvent and profitable and the petitioner holds only a minority shareholding.

Legislation cited (15)

  • Companies Act No. 1 of 2012 s.247
  • Companies Act No. 1 of 2012 s.248
  • Companies Act No. 1 of 2012 s.249
  • Companies Act No. 1 of 2012 s.250
  • Companies Act No. 1 of 2012 s.293
  • Companies Act No. 1 of 2012 s.296
  • Companies Act No. 1 of 2012 s.298
  • Companies Act No. 1 of 2012 s.47
  • Companies Act Cap 110 s.222(f)
  • Company (Winding Up) Rules SI 110-2 r.2
  • Company (Winding Up) Rules SI 110-2 r.4
  • Company (Winding Up) Rules SI 110-2 r.21
  • Company (Winding Up) Rules SI 110-2 r.22
  • Civil Procedure Rules SI 71-1 O.12 r.3
  • Interpretation Act s.12

Cases cited (6)

  • Stop and See Uganda Limited v Tropical Bank (Miscellaneous Application No. 333 of 2010)
  • Ismail Dabule and 2 Others v Attorney General and Another (Constitutional Appeal No. 3 of 2007)
  • [1867] LR 2 Ch App 424
  • Bytrust Holding Ltd v IRC [1971] 1 WLR 1333
  • [1902] 1 Ch 707
  • Mawogola Farmers and Growers Ltd v Kayanja and Others (No. 1) [1971] 1 EA 108

Full judgment

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Kigongo v Mosa Courts Apartment Ltd (Company Cause No. 01 of 2015) [2016] UGHCCD 11 (9 February 2016)
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.