New plan to harmonise bankruptcy laws

Dar es Salaam. The government of Tanzania – acting through the Registration, Insolvency and Trusteeship Agency (Rita) – is in the final stages of preparing a bill on harmonising the legal frameworks that govern the bankruptcy of companies and investors in the country.

Speaking in an interview with BusinessWeek last week, the Rita acting manager for Insolvency and Trusteeship, Mr Reginald Makoko, said the agency is working on a draft bill for a law that would fill the vacuum in those areas.

Rita is statutorily charged with the task of supervising on behalf of the government the bankruptcy processes involving investors in Tanzania.

“We are in the final stages of drafting the bill on bankruptcy – doing so with the Law Reform Commission. We will soon call for a dialogue with stakeholders in completing the drafting,” said Mr Makoko – who is substantially a senior lawyer of the agency.

The existence of a uniform set of regulations on overseeing the process of insolvency, or the exit of big business undertakings, is necessary for improving Tanzania’s business environment.

Currently, the country’s legal frameworks that govern the process of winding up and closing business enterprises are scattered all over the statute books… And, when business insolvency processes are complex, the business environment becomes unfriendly for prospective investors.

Mr Makoko cited some of the pieces of legislation that are unclear when it comes to governing business exit as including the Finance and Banking Act (2006), the Co-operative Societies Act (2013), the Business Activities and Registration Act of 2007, the Insurance Act (2009) and the Bankruptcy Act of 1930.

Contrary to Tanzania – which has patches of laws governing bankruptcy or business exit – Kenya has a sound and uniform law that provides clear processes in seeking to exit from a business undertaking, Mr Makoko says.

“Many investors have been submitting enquiries to Rita seeking guidance in the process of business exit, and looking for strong partners in investment development. But we are stuck due to the absence of clear legislation on insolvency,” he laments.

According to the latest publication by the Kenya government, the East African Community member-nation enacted the Insolvency Act (No.18 of 2015) with clear provisions for – among other issues – the appointment of bankruptcy trustees and bankruptcy creditors, as well as the adjudication of bankruptcy debtors, and bankruptcy applications.

The Kenyan law on insolvency also dwells on duties of bankruptcy, disclaimers of bankruptcy, powers of bankruptcy trustees and the court and bankruptcy application by debtors.

The Rita marketing and communications manager, Mr Josephat Kimara, raised similar concerns with BusinessWeek, arguing that Tanzania has not been performing well in the World Bank rankings on the ‘Ease of Doing Business.’

This, he said, is “partly because the process of timely exit from business undertakings in Tanzania is complicated and uncertain.

“We are working hard to complete drafting a bill that is sound, because a uniform (legal framework) governing insolvency is sorely needed in creating a favorable investment and business climate. There is a real need to have clear and easy-to-follow processes for entry into business – and exit from it,” Mr Kimaro explains.

Noting that enacting a sound law on insolvency is in line with the national program on improving the business environment, he said doing so is very much in accordance with the World Bank’s indicators in the ‘Ease of Doing Business’ framework.

Commenting on the matter, the executive director of Entrepreneurship Development Centre, Dr Donathan Olomi, emphasized that unclear business exit processes create complications in such areas as business partnerships and transfer of assets in times of changing or winding up business operations.

“It must be taken in mind that a business entity is like a person who is dynamic and flexible. But, when the person dies, or moves to another location, the assets and other belongings he possessed must be easily traced. In this regard, a clear law guiding the transfer of property, assets and debts is needed,” Dr Olomi said in his capacity as a business consultant.

An easy process of closing a business is necessary for investors to be able to opt for alternative business ventures which are sustainable business operations in conformity with time and prevailing conditions, Dr Olomi further elaborates.

“The World Bank has 11 indicators for assessing ‘Ease of Doing Business’ – and one of them is how easy it is for an entrepreneur to exit from business,” he says. “Currently, there is wide use of practising lawyers to the extent that there is no easy and smooth process of transferring assets as and when business ventures come to an end!”

Business analysts are also generally of the common view that the absence of a clear law on bankruptcy makes it most difficult for the Tanzania Revenue Authority (TRA) to recover taxes from businesses as a matter of course.