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What bailout seekers have in common

As dozens of companies try to extract billions of shillings from President Museveni's government, SULAIMAN KAKAIRE finds that the 'distressed' firms have some interesting threads  linking them.

Some of the financially-distressed businesses that are hankering for the proposed Shs 1.3 trillion government bailout have something in common: they borrowed and surprisingly began defaulting on repayment at around the same time, an independent investigation by The Observer has found.

About three out of 10 companies investigated borrowed between April and August 2015, around the time the ruling NRM mobilised resources for the 2016 election and the construction of the Movement House.

Whereas this could be purely coincidence, a public search in the companies’ registry, which by law keeps all companies’ details, found that three companies also coincidentally fell in huge debt around the same time, this year. The three companies are Club Silk Limited, Ham Enterprises (U) Limited and Concern Global Markets Limited.

Hamis Kiggundu (R) of Ham Enterprises (U) Ltd presents his development plans to President Museveni recently 

According to documents found in the registry, the board of directors of Club Silk Limited resolved to guarantee a Shs 3.3bn loan availed by Liquid Silk Limited from Crane bank on April 10, 2015. The resolution, which was signed by Elvis Ssekyanzi Wavamunno and John Kaggwa, both directors in the company, provided for the creation of a “registered mortgage of Club Silk Limited Property relating to a building block located on leasehold land at plot 17A First street, Industrial area” in favour of Crane bank.

According to the published list of distressed companies, Club Silk Limited owes Crane bank Shs 5bn. Records for Concern Global Markets Limited show the company issued a debenture to Crane bank acknowledging receipt of Shs 7.3bn, pursuant to a resolution dated April 2, 2015.

“This debenture is issued in accordance with the provisions of the company’s memorandum and articles of association and in pursuance of a resolution of the board of directors of the company dated 02nd day of April, 2015,” one document on file partly reads. The resolution to borrow, which was filed with the registry on April 21, 2015 was signed by Tom Kaaya and Simon Amanya, both directors of the company.

According to the resolution filed by Ham Enterprises (U) Limited, the company acknowledges borrowing Shs 5bn from Diamond Trust Bank (U) Limited. Although the registrar of companies was notified on March 31, 2016 of this resolution, the resolution does not specifically indicate the exact date when it was approved. Instead of filing the resolution before borrowing as the norm is, Ham Enterprises borrowed and filed the resolution later.


Coincidentally, around the time in 2015 when the said companies borrowed money, NRM also conducted a fundraiser for its activities and collected at least Shs 16bn from prominent businessmen.

Around June, 2015, Hamis Kiggundu, one of the listed directors of Ham Enterprises, donated Shs 200m to the fundraising. The other individuals in need of a bailout who  contributed to the NRM fundraising drive include Joseph Yiga of Steel and Tube, Roofings Steel Mills, Patrick Bitature of Simba Business Group, George William Kajoba, owner of Sojovalo hotel, and Ephraim Ntaganda of E Towers.

Because some of the indebted individual businessmen contributed to President Museveni’s re-election and NRM activities, there’s speculation that they want to recoup their money. This was the view, for instance, taken by former FDC president Kizza Besigye on the matter.

That speculation has triggered calls from some analysts for restraint and a careful study of the loans and the businesses before giving any company public money.
Robert Kirunda, a lecturer of corporate finance and securities at Makerere University, told The Observer in a July 28 interview that this study or inquiry can help provide the right diagnosis.

“We have to know when, how the loans were acquired and utilised before we could apportion responsibility,” Kirunda said.

Kirunda argued that the president’s categorisation of distressed companies into those that export, those that supplied government but were not paid and those distressed due to the banks’ unscrupulous activities, is a rushed conclusion.

“We still need more information on who supplied who and why government didn’t pay. In fact, if it is about issues of debts, there are systems to deal with that before we could move to a bailout.”


Prof David Bakibinga, an expert on corporate finance and commercial law at Makerere University, said on July 28 that the available legal regime can sufficiently deal with the ailing companies instead of taxpayers shouldering the burden.

“Have the options of raising equity on the stock market, guided by the Capital Markets Authority, been exhausted? Third, have the options under the Insolvency Act, 2011 and the Companies Act, 2012, including restructuring, amalgamation and takeover been exhausted?” Bakibinga asked.

Or if they can’t pay debts, he said, they should be put under administration as provided for by the Insolvency Act. The Act provides for how indebted companies can be rescued without being wound up. For instance, administration entails reorganisation of the businesses so they can be steered back to being an efficient going concern.

During administration, liquidation and receivership are suspended and the fundamental duties of the administrator are: “to investigate the company’s business, property, affairs and financial circumstances and to exercise his or her powers in a manner which he or she believes on reasonable grounds to be likely to achieve one or more of the following outcomes—the survival of the company and the whole or any part of its undertaking as a going concern.”

Similarly, the Companies Act provides for mechanisms of reorganising businesses and raising funds for struggling businesses.

Bakibinga said all these mechanisms help save jobs and taxes since the businesses will be going: “But most importantly, the Shs 1.3 trillion is spent on other priorities; we still need better hospitals and roads. We do not have these resources in excess.”


Besides, the provisions under the Companies Act and Insolvency Act help in investigating whether the companies were managed on sound statutory corporate governance principles.

Our public search of the registry, found that some companies did not register documents of their indebtedness: Steel Rolling Mills, Shumuk Aluminium Industries, Serene Suites, Simba Group, TV Africa Limited and Sojovalo Hotel Limited.

Elvis Sekyanzi Wavamunno

Some of the ‘indebted’ companies have never filed annual returns or those that have ever filed, have not done so in recent years, which contravenes the Companies Act. Of the 10 companies surveyed, only two have complied, while others including; Simba Group and TV Africa Limited have never cared to file their returns since incorporation.

According to section 132 of the Companies Act, a company with share capital shall, at least once every year, file returns containing its registered office, members of the company and debenture holders, shares and debentures indebtedness, past and present members and directors and secretary. Short of this, the company and every officer who is in default is liable to a default fine of twenty-five currency points (Shs 500, 000).

Importantly, when the companies do not file their annual returns as provided by the law, it becomes hard to assess whether they are complying with corporate governance principles or not. According to Dr Fred Muhumuza, an economist at the audit firm KPMG, it is highly probable that some of these companies are not properly audited.

“It is not the government to bail out such companies; it will be sending a bad signal to the other players in the economy. People will start to borrow and fail to pay expecting to be bailed out,” Muhumuza said.

It is even hard, he added, to establish whether the businesses are tax-compliant or employ that many people.

“There are no clear criteria of even how to assess their viability since they do not keep proper records,” he said.


If the bailout approach is to be taken, Bakibinga says, it may be instructive to examine how similar bailouts were handled in Kenya, UK (Northern Rock) and the US (AIG).

“Related to this, do we need an Emergency Stabilization Act [similar to US] before the bailouts can be effected? This may require scrutiny of the company’s profile e.g over the past five years,” he said.

America’s EESA provides for the secretary to the treasury to buy mortgages and other assets clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit.


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