Winding Up of Companies

What is Winding Up?

Winding up refers to the legal process through which a company ceases its business operations, settles its debts, and is ultimately struck off the register of companies. 

It is the formal way of closing a business, ensuring that all legal, financial, and regulatory obligations are properly concluded.

What is Liquidation?

Though often used interchangeably, winding up and liquidation are not exactly the same thing. Liquidation is a key part of the winding up process which involves selling off (or “liquidating”) the company’s assets and turning them into cash. 

This cash is then used to pay off the company’s debts and liabilities before any remaining funds (if any) are distributed to the shareholders. In essence, liquidation is the financial mechanism within the broader legal process of winding up.

Governing Laws

The discussion contained in this article is derived from the following laws as recently revised. 

Companies Act, Cap. 106

Insolvency Act, Cap. 108

Companies Regulations, 2023

Insolvency Regulations, 2013

Who can carry out Winding Up?

While the company is involved in the process of winding up, the process must be conducted by a licenced insolvency practitioner. 

Types of Winding Up of Companies

There are three main types of winding up companies in Uganda namely:

1. Members Voluntary Winding Up 
2. Creditors’ Winding Up.
3. Compulsory Winding Up (By order of or under supervision of Court)

Each of these follows a different procedure and applies under different circumstances, depending on the financial state of the company and who initiates the winding up process.

1. Members’ Voluntary Winding Up

This type of winding up is initiated voluntarily by the company’s members (i.e., shareholders), usually when the company is still solvent and able to pay off all its debts. 

The decision to wind up is often made when the company has fulfilled its original objectives (e.g., a company set up to complete a one-off project like constructing a road), or the members simply decide to close down the company for personal, strategic, or financial reasons.

In this process, the directors must make a statutory declaration of solvency, confirming that the company can pay its debts in full within a specified period (usually 12 months). A special resolution must be passed agreeing to the company’s winding up. Once the resolution is passed, a liquidator is appointed to oversee the process of winding up, including asset disposal and debt repayment.

Step by Step Procedure for Members’ Voluntary Winding Up

Step 1: Board and Directors’ Meeting

The directors convene a meeting to consider the financial position of the company and to resolve whether to recommend a voluntary winding up. (Section 269 Companies Act).

Step 2: Declaration of Solvency

Where the company is solvent, the directors prepare a Statutory Declaration of Solvency in Form 38, in accordance with section 269 of the Companies Act and Regulation 40 of the Companies Regulations 2023.

The declaration must:

• Be made at a directors’ meeting within 30 days before passing the winding-up resolution.
• Be delivered to the Registrar of Companies with a copy to the Official Receiver before the resolution is passed.
• Include a statement of the company’s assets and liabilities.

Step 3: Special Resolution to Voluntarily Wind Up

The Board calls an extraordinary general meeting of the members, who pass a special resolution to voluntarily wind up the company in compliance with section 144 of the Companies Act.

According to section 266(2) Companies Act (for solvent companies) and section 58(2) Insolvency Act (for insolvent companies), voluntary liquidation commences at the time of passing the resolution.

Step 4. Notice of Resolution of Voluntary Winding Up

Within 14 days, the company must publish a notice of the resolution in the Gazette and a newspaper of wide circulation, in line with section 267(1) of the Companies Act.

Thereafter, within 7 days of passing the resolution, a copy must be filed with the Registrar and delivered to the Official Receiver (section 267(2) of the Companies Act).

According to Regulation 39 the notice of resolution of voluntary winding up must be in Form 35 of the Schedule to the Companies Regulations 2023.

Step 5: Filing with the Registrar

In accordance with regulation 39(3) of the Companies Regulations, the company must furnish the Registrar with:

• The special resolution,
• The Statutory Declaration of Solvency, (Regulation 40 – Form 38 Company Regulations 2023) and
• A statement of affairs (Regulation 106 – Form 20 Insolvency Regulations, 2013)

Step 6: Registrar’s Public Notice

According to Regulation 39(4) Companies Regulations 2023, upon receipt of the documents, the Registrar publishes a Public Notice in Form 36 in the Gazette and a newspaper of wide circulation for 30 days.

Further, section 270(2) Companies Act and Regulation 39 (6) Companies Regulations 2023 provide that, where the company has no assets or liabilities, the Registrar issues a certificate of dissolution in Form 37 in the Schedule.

Step 7: Appointment of Liquidator

The members appoint one or more liquidators by special resolution, in accordance with section 62 of the Insolvency Act, and may fix the liquidator’s remuneration.

The appointment must be advertised in the Gazette within 14 days, and a copy of the notice is filed with the Registrar and delivered to the Official Receiver.

Per Section 62(2) Insolvency Act, on appointment, the powers of the directors cease, except where specifically continued by the company or the liquidator.

Step 8: Statement of Affairs by Liquidator

The liquidator prepares and files a Statement of Affairs with the Registrar, in the prescribed form under the Insolvency Regulations (Form 20).

Step 9: Conduct of Liquidation

The liquidator manages the company’s affairs, realizes assets, pays debts, and distributes remaining property among members.
With a special resolution, the liquidator may accept shares or other interests in a transferee company in lieu of cash or participate members in the profits of a transferee company (section 64 of the Insolvency Act).
Any dissenting member may require the liquidator to purchase their interest, with the price determined by agreement or arbitration (section 64(3–4) of the Insolvency Act).

The liquidator gives a public notice of the preliminary or interim report of liquidation under Regulation 131 Form 25 of the Insolvency Regulations, 2013.

Step 10: Creditors’ Meeting (If Insolvent)

If the liquidator determines that the company cannot pay its debts in full;

• He/she must immediately notify the Registrar and the Official Receiver and,
• Call a meeting of creditors to present a statement of the company’s assets and liabilities (section 65 of the Insolvency Act).

Step 11: Annual General Meetings During Liquidation

Where liquidation continues for more than one year, the liquidator must summon a general meeting of members at the end of each year, presenting an account of acts, dealings, and conduct of the liquidation (section 66 of the Insolvency Act).

Step 12: Final Meeting and Accounts

When liquidation is complete, according to section 67(1)(a) of the Insolvency Act and regulation 133 of the Insolvency Regulations, 2013, the liquidator prepares a final account showing how the company’s assets were realized and distributed. (Form 26 in Schedule 1).
In line with section 67(2), the liquidator calls a final general meeting with at least 30 days’ notice in the Gazette and a newspaper of wide circulation to present the account.

According to section 67(3), the liquidator must send a copy of the account and a return of the meeting to the Official Receiver within 14 days. Per section 67(4), if no quorum is present, reporting that the meeting was duly summoned suffices.

Ultimately, under section 114(1) Insolvency Act, liquidation is deemed complete once the liquidator has submitted the final report and final account.

Step 13: Dissolution of the Company

In accordance with section 67(5), the company is automatically dissolved three months after registration of the return, unless the court defers the dissolution. 

Furthermore, per sections 67(6) and (7), any court order must be registered with the Official Receiver within seven days, and non-compliance attracts a daily fine.

2. Creditors’ Winding Up

This occurs when the company is insolvent, meaning it cannot pay its debts as they fall due and the shareholders, recognising this, decide to wind up the company voluntarily. However, because the company cannot pay its creditors, the creditors themselves have a say in the process.

Creditors’ voluntary winding up allows for a more cooperative and controlled closure than being forced into liquidation by the courts, while still protecting the rights and interests of creditors.

A meeting of shareholders is held to propose the resolution to wind up the company. Around the same time, a meeting of creditors must also be convened. At the creditors’ meeting, the financial situation of the company is disclosed, and the creditors can approve the appointment of a liquidator or nominate one of their own.

Step by Step Procedure for Creditors’ Voluntary Winding Up

Step 1: Board Resolution to Initiate Liquidation

The directors convene a board meeting to acknowledge that the company is unable to pay its debts and recommend that the company be wound up voluntarily by creditors.

Step 2: Notice of General Meeting and Creditors’ Meeting

Per Section 69(1) Insolvency Act, the company must convene a general meeting of shareholders to pass a special resolution to wind up the company.

A meeting of the creditors must also be summoned on the same day as the shareholder meeting or the day after.

Notices of both meetings must be sent to creditors in accordance with Schedule 3 of the Insolvency Act and advertised:

• Once in the Gazette, and
• Once in a widely circulated newspaper in the official language (Section 69(2) Insolvency Act)

Failure to issue notices properly or convene the meetings attracts fines (Section 69(6) Insolvency Act).

Step 3: Conduct of Creditors’ Meeting

The creditors’ meeting and its proceedings flow are provided for in Schedule 3 of the Insolvency Act. 

According to sections 69(3)-(4) Insolvency Act, a director appointed by the board presides over the meeting.

The directors must present:

• A full statement of the company’s affairs;
• A list of all creditors and the estimated amount of their claims.
• The director must be physically present and chair the meeting.

Step 4: Appointment of Liquidator

During the meetings (Section 70(1) Insolvency Act):

• The company and creditors nominate a liquidator.
• If both nominate different individuals, the creditors’ nominee prevails.
• If the creditors do not nominate anyone, the company’s nominee becomes liquidator by default.

Where a dispute arises between nominees, an application can be made to court within 7 days to resolve it (Section 70(2) Insolvency Act).

Step 5: Appointment of Committee of Inspection (Optional)

According to Section 71 Insolvency Act, creditors may appoint up to five members to a Committee of Inspection to supervise the liquidation process.

The company may also appoint members, but the majority must be creditor-appointed.

The committee has statutory powers to oversee the liquidator’s actions (Section 72 Insolvency Act), including monthly meetings, removal of members, and filling vacancies.

Step 6: Cessation of Directors’ Powers

Upon appointment of a liquidator, under Section 73(2) Insolvency Act, all directors’ powers cease, unless the Committee of Inspection (or the creditors, if no committee exists) resolves otherwise.

Step 7: Notice of Liquidator’s Appointment

Section 82 Insolvency Act provides that the liquidator must, within 14 days of appointment:

• Publish the appointment in the Gazette;
  
• Notify the Registrar and the Official Receiver with the prescribed form.

Failure to do so attracts a fine of up to 5 currency points per day of default (Section 82(2) Insolvency Act).

Step 8: Conduct of Liquidation

The liquidator manages the company’s affairs, realizes assets, pays debts, and distributes remaining property among members.
With a special resolution, the liquidator may accept shares or other interests in a transferee company in lieu of cash or participate members in the profits of a transferee company (section 64 of the Insolvency Act).
Any dissenting member may require the liquidator to purchase their interest, with the price determined by agreement or arbitration (section 64(3–4) of the Insolvency Act).

The liquidator gives a public notice of the preliminary or interim report of liquidation under Regulation 131 Form 25 of the Insolvency Regulations, 2013.

Step 9: Annual General Meetings During Liquidation

Where liquidation continues for more than one year, the liquidator must summon a general meeting of members at the end of each year, presenting an account of acts, dealings, and conduct of the liquidation (section 66 of the Insolvency Act).

Step 10: Final Meeting and Accounts

When liquidation is complete, according to section 67(1)(a) of the Insolvency Act and regulation 133 of the Insolvency Regulations, 2013, the liquidator prepares a final account showing how the company’s assets were realized and distributed. (Form 26 in Schedule 1).
In line with section 67(2), the liquidator calls a final general meeting with at least 30 days’ notice in the Gazette and a newspaper of wide circulation to present the account.

According to section 67(3), the liquidator must send a copy of the account and a return of the meeting to the Official Receiver within 14 days. Per section 67(4), if no quorum is present, reporting that the meeting was duly summoned suffices.

Ultimately, under section 114(1) Insolvency Act, liquidation is deemed complete once the liquidator has submitted the final report and final account.

Step 11: Dissolution of the Company

In accordance with section 67(5), the company is automatically dissolved three months after registration of the return, unless the court defers the dissolution. 

Furthermore, per sections 67(6) and (7), any court order must be registered with the Official Receiver within seven days, and non-compliance attracts a daily fine.

3. Compulsory Winding Up (By Order of the Court)

Compulsory winding up is initiated through a court process. It typically arises when the company is unable to pay its debts, and one of the following parties; creditors, shareholders, directors, receivers, or contributories petitions the court to have the company wound up.

The most common ground for compulsory winding up is insolvency: where the company is unable to meet its financial obligations as they fall due, or its liabilities exceed its assets.

The court, upon reviewing the petition and the company’s financial state, may issue a winding up order. A court-appointed liquidator then takes control of the company’s assets and affairs, oversees liquidation, and ensures the proper distribution of funds in accordance with the law.

Step by Step Procedure for Members’ Voluntary Winding Up

Step 1: Jurisdiction and Who May Petition

Under Section 91 of the Insolvency Act, jurisdiction over liquidation matters lies exclusively with the High Court. Therefore, all compulsory winding-up proceedings must be initiated before the High Court of Uganda.

As per Section 92(1), a petition for the court to appoint a liquidator may be made by:

• the company itself,
• a director,
• a shareholder,
• a creditor,
• a contributory (a member liable to contribute to the company’s assets), or
• the Official Receiver.

However, the court will only entertain such an application if it is satisfied that the company is unable to pay its debts, as defined in Section 2 of the Act. This typically means the company has failed to satisfy a statutory demand or is otherwise shown to be insolvent.

Step 2: Court’s Discretion Upon Petition

Once the petition is presented, Section 92(3) gives the court broad discretion. It may:

• dismiss the petition,
• adjourn the hearing (conditionally or unconditionally),
• issue interim orders, or
• make any other order it deems appropriate.

Importantly, the court cannot refuse to make a winding-up order simply because the company has no assets, or because its assets are already fully encumbered by mortgages. The absence of free assets is not a valid ground to reject the petition.

Step 3: When Liquidation Commences

According to Section 93, the commencement date of court-supervised liquidation depends on whether a voluntary winding up has already begun.

• If a company has already passed a resolution for voluntary winding up before the petition is presented, then liquidation is deemed to have commenced on the date of that resolution.
• In all other cases, liquidation commences on the date the petition is presented to court.

Unless fraud or mistake is proven, Section 93(1) also provides that all acts done during the voluntary liquidation prior to court intervention remain valid.

Step 4: Appointment of Provisional Liquidator

Upon making a winding-up order under Section 92, the court must appoint a provisional liquidator under Section 94(1). This may be the Official Receiver or another insolvency practitioner approved by the court. The role of the provisional liquidator is to preserve the value of the company’s assets pending final orders.

Under Section 94(2), the provisional liquidator has immediate powers to sell or dispose of perishable goods or any assets likely to lose value if not quickly sold. The court may, however, limit these powers or impose conditions on how they are exercised.

Step 5: Notice Requirements

Following the appointment, the provisional liquidator is required under Section 95 to, within fourteen days of commencement of liquidation:

• publish a public notice of the date of commencement of liquidation, and
• call a shareholders’ meeting.

Separately, Section 96(1) Insolvency Act imposes a duty on the liquidator (once formally appointed) to, within five working days of their appointment to publish a notice in the Gazette and a newspaper of wide circulation in Uganda specifying the date of commencement of liquidation, the liquidator’s full name, their physical office address, and their daytime telephone number. A copy of the notice must then be submitted to the Official Receiver.

Furthermore, under Section 96(2), the liquidator must indicate the company’s liquidation status by:

• Appending the words “in liquidation” to the company name on all business letters, invoices, and orders for goods, and
• Disclosing the liquidation status in any transaction or official communication issued on behalf of the company.

Failure to comply with these notice requirements constitutes an offence under Section 96(4) Insolvency Act, and attracts a fine of up to 100 currency points.

Legal Effect of Liquidation

Upon commencement of liquidation, a number of immediate legal consequences arise under Section 97(1) of the Insolvency Act;

• The liquidator takes custody and control of all company property.
• The company’s officers (such as directors and secretaries) remain in office but lose all powers unless permitted or required by law to continue acting. See also section 62(2) Insolvency Act. 
• All legal proceedings against the company are automatically stayed, that is to say, no execution, distress, or court process can be commenced or continued against the company or its assets without leave of court.
• The shares of the company cannot be transferred, and no changes can be made to shareholder rights or liabilities.
• The company’s memorandum and articles of association cannot be altered, except that the liquidator may change the registered office or postal address of the company.
• Under section 60(1) Insolvency Act, voluntary liquidation makes the company cease its operations. 

Lastly, while liquidation restricts enforcement actions, Section 97(2) clarifies that any party holding a charge over company property (e.g., a mortgage or debenture holder) may still enforce it, provided they comply with Section 10 of the Insolvency Act.