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A new breed of legal support

Series on secured transactions, corporate recovery, and banking litigation in Tanzania

2018-08-11 05:27:33

By Paul Kibuuka

This introductory article provides background information on this new 30-part series, outlines some of the topics and central issues that we will cover, and highlights the need that the series will address for the banking and financial services sector and the business community in Tanzania.  

Motivated by our highly successful 10-part private equity series and the positive feedback we received from readers, we bring you this new series on secured transactions, corporate recovery and insolvency, and banking litigation at a time when commerce in Tanzania is becoming steadily more credit-driven, companies are increasingly finding themselves in financial distress, and the number of receiverships and liquidations is rising due to either bad debts or inability to settle debts, or both.  

The series is designed to ignite debate amongst business executives, bankers, regulators, policymakers, and academics and enhance better understanding of central issues in secured transactions, corporate recovery and insolvency, and banking litigation. We will approach the series from a Tanzanian law perspective. Due to the interconnections and interdependencies in the global financial system, we will also consider the international best practices from the UK and Canada. We encourage you to follow the series in The Citizen and on this website every Saturday, starting from 17 August 2018 to 30 March 2019.

With regard to secured transactions, we will consider finer legal and related points in collateral options; taking security over specific assets; documentation and perfection issues; third party security (in effect, this means guarantees); special financing transactions (e.g. in the local shipping industry); and amending or transferring collateral security. Understanding loan documents and the key provisions allows banks to negotiate better and to give insightful advise to borrowers. We will look at certain provisions that are the main bone of contention between banks and borrowers and how this should be approached.

Incorporating the latest attitude and thinking of Tanzanian courts as well as UK courts, as embodied in the judgments and rulings of these courts, our articles in corporate recovery and insolvency will include discussions about directors’ liability in financially distressed companies; receiverships; liquidations; enforcement of security rights and recovery of loans; continuing business while in insolvency; impact of administration and other measures on existing contracts; ranking of creditors’ claims; tax liabilities and advantages, and alternatives to asset/business realization. It is a nightmare for shareholders to be faced with the petition for winding up their company. Our articles will provide practical insights into minimizing any adverse impact.

We will also bring you articles on lender liability and banking litigation in Tanzania. Lender liability is a result of a bank’s conduct towards its customer or a third party, who alleges that the bank breached a duty created at “common law” (English law derived from custom and decided cases), or breached a Tanzanian statutory obligation.

We will consider a bank’s exercise of control over the affairs of a corporate borrower; what constitutes inequitable or fraudulent conduct of a bank towards the borrower; and other conduct proscribed by applicable Tanzanian laws. Why are these points important? They are important because a bank may be held liable for damages, penalties or fines; and may find that its claims against the borrower or third party are equitably subordinated or avoided completely.   

It’s true that secured transactions; corporate recovery and insolvency; and banking litigation are now very topical issues in Tanzania, as banks and financial institutions are struggling with huge nonperforming loans portfolios and liquidity problems. It is our hope that the article series will successfully address these issues of concern and prove to be of value to those who read them.

Writing the first article in the series and generating ideas—useful ideas—and putting them together for future articles in the series will definitely be time-consuming. I’m exceedingly grateful to the team at Isidora & Company Advocates for their support of this series idea, and for agreeing to carve out time required for research. Special thanks go to the editorial board of The Citizen, Tanzania English daily, for agreeing to publish the series in furtherance of public education.

Paul Kibuuka is the managing partner of Isidora & Company Advocates, a corporate, commercial and financial law firm. This article was published in The Citizen on Saturday, 11 August 2018

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