Justice, Prof. Lillian Tibatemwa-Ekirikubinza, of the Supreme Court has today dismissed Bank of Uganda’s attempts to hold on to Crane Bank Limited and ordered that the company be returned to its shareholders following the lapse of the receivership on 20th January 2018 and the dismissal of Bank of Uganda’s case against the bank’s shareholders.
Delivering her ruling today, 1st July 2022, Justice Prof. Tibatemwa-Ekirikubinza echoed the 11th of February 2022, Supreme Court ruling in which five Justices of the Supreme Court—Rubby Opio-Aweri, Faith Mwondha, Prof. Tibatemwa-Ekirikubinza, Ezekiel Muhanguzi And Percy Night Tuhaise affirmed that the receivership of Crane Bank had ended on 20th January, 2018 and that Crane Bank be returned to the shareholders.
Following the landmark 11th February 2022 ruling and by Rule 34(2) (a) (supra), Dr. Sudhir’s lawyers prepared a draft decree of the orders to be made by the Court and submitted the same to BoU for approval. While the Central Bank agreed with the orders to the effect that its appeal is dismissed with costs to be borne by the Bank of Uganda and that the dismissal of the Appeal takes effect from the 11th February 2022, they disagreed with the third decree regarding the reversion of the Crane Bank to its original shareholders.”
The Central Bank then, under Civil Appeal No.07 of 2020 went to the Supreme Court.
While Sudhir Ruparelia’s lawyers argued that Crane Bank’s receivership had ended on the 20th of January 2018 and therefore this meant that the company had reverted to its original shareholders, as ordered by the five Supreme Court Justices, the Central Bank’s lawyers argued that the five justices had erred since, in the first place, the Supreme Court had no jurisdiction to make an order reverting the management to the shareholders, because that issue was not under trial. They contended that the only issue under trial on that day was in respect of which party should pay the costs, following the Bank of Uganda’s earlier move to withdraw the case in August 2020.
BoU lawyers also argued that the Court could not hand over management of Crane Bank Limited (in receivership) because, under Part IX of the Financial Institutions Act, the power to manage a distressed financial institution is vested in the Bank of Uganda.
Crane Bank is no longer a bank and therefore can’t be under the Bank of Uganda
Justice, Prof. Lillian Tibatemwa-Ekirikubinza, in her ruling today, dismissed the Central Bank’s arguments saying that the progression of an entity into receivership, does not in any way diminish or affect the legal existence of a company.
“In the context of the Financial Institutions Act, closure of the Bank meant it lost its licence to operate as a financial institution. However, the company as a legal personality did not cease to exist. It must be noted that an entity must first be incorporated or registered as a company under the Companies Act before it can be licensed to operate as a financial institution,” she ruled.
Letters to My Younger Self: What Uganda’s CEOs and Professionals Wish They Knew at the StartShe reminded the Central Bank that Section 95 (1) of the Financial Institutions Act, allows the Central Bank to do only four things, namely: arrange a merger with another financial institution, arrange for the purchase of assets and assumption of all or some of the liabilities by other financial institutions; arrange to sell the financial institution, and liquidate the assets of the financial institution and that all this must happen within 12 months.
“After the expiration of 12 months from the date of takeover by the receiver, receivership must be deemed to have lapsed by operation of law/by effluxion of time,” she said adding: “It is a position at common law that where a legal relationship is terminated by effluxion of time then the rights accruing revert back to the owner.”
“Since receivership ended by effluxion of time under section 95 (1) of the FIA, the assets and liabilities of the Financial Institution hitherto under receivership revert to the shareholders, with the attendant right to manage the institution,” she reasoned, adding: “Furthermore, the return of management to the shareholders is a
logical result of the fact that the Central Bank is no longer receiver, no longer manager. Law abhors a vacuum.”
She also reminded the Central Bank that Crane Bank Limited was no longer a financial institution to be under the management of the Central Bank.
“The Appellant’s argument that even after receivership ended, management cannot revert to the shareholders on the basis that that part IX of the Financial Institutions Act still applies to the Company, is to presume that the Appellant is still operating as a financial institution. And yet, the consequence of the Bank of Uganda placing Crane Bank under receivership and closing it, was that the Company ceased operating as a financial institution. It lost its licence. It is only when, and if, the Appellant company commences operations as a financial institution that the supervisory role of the Central Bank would resume, with the consequence that Part IX can be applicable.”
“The Appellant’s receivership ended on 20th January 2018 and consequently, its management reverted to the shareholders,” she ordered.
The ruling, by the highest court in the land, effectively hands over Crane Bank Limited to its original shareholders. It also means that the Central Bank can no longer take any other action in Crane Bank’s name, especially after the Supreme court had thwarted attempts to progress the bank into liquidation last year.
