Legal experts have raised questions over Bank of Uganda’s (BoU) failure to prepare an inventory report and other documents stating the assets and liabilities, when it closed Teefe Trust bank on grounds of insolvency.
In an interview with The Observer, Robert Kirunda, a lecturer of commercial law at Makerere University, said the central bank, as the institution which assures financial stability in the economy, must be cautious especially when it assumes the role of a liquidator.
A liquidator is empowered by law to act on behalf of an insolvent company to sell its assets before its winding-up in order to generate money to pay off creditors.
“The law of insolvency [which covers rules and principles that provide relief to a debtor who lacks the means to pay creditors] presumes a liquidator to act in a particular manner. And at all material times, BoU, on assumption of that role, is expected to act within that framework,” Kirunda said.
In November last year, when the parliamentary committee on Commissions, Statutory Authorities and State Enterprises (Cosase) started investigations into seven defunct banks, it instructed Auditor General John Muwanga to specifically audit the status of the banks at closure, cost of liquidation, status of assets and liabilities, non-performing assets, non-recoverable assets and liquidators.
Between the months of January and April this year, Muwanga tried to gain access to the necessary documentation pertaining to the closure of Teefe Trust bank but in vain.
So, when he reported to parliament last month, Muwanga said he was not availed with the inventory report, loan schedules, customer deposit schedules and statements of affairs of Teefe Trust bank to enable him fulfil the specific audit objectives.
“Due to this limitation, I could not assess the status of the assets and liabilities of Teefe Trust bank from closure to-date,” Muwanga’s report observes.
“BoU management explained that it will continue to search in the archives to get all the information.”
At the beginning of this month, Cosase convened to consider the audit queries raised against BoU, including its failure to grant the AG access to the required information. To this effect, Cosase chairperson Abdu Katuntu wrote to BoU governor Emmanuel Tumusiime-Mutebile asking for the said documents.
In its first written response, central bank argued that; “Teefe Trust bank was closed in February 1993 under the provisions of the Banking Act of 1969 which did not contain substantive provisions on reports that the liquidator (a person legally empowered to act on behalf of a company to sell the company’s assets prior to the company’s winding-up in order to generate cash to pay off debts) was required to compile.”
However, on November 1, when the committee was not convinced by this response, Mutebile’s people asked for more time to find the documents. Sources on the committee say that BoU later supplied a pile of documents to the committee, which the MPs found wanting in content.
On November 12, when the committee had a second interaction with BoU, they repeated their demand for the relevant information. Indeed, when Katuntu and other members of the committee raised concerns about the irrelevance of the parliament process without the availability of the requisite documents, BoU executive director in charge of bank supervision Twinemanzi Tumubweine was compelled to pass on the question to the fellow director in charge of commercial banking, Benedict Sekabira. Sekabira was a junior staff at BoU when Teefe was closed.
At first, Sekabira said the inventory report was provided as a summary. His submission depended on a letter written by former BoU employee, Edward Kagimu Mugwanya on March, 13, 2001 to the then minister of finance, which was capturing the financial position of Teefe. But Cosase insisted that what Sekabira was providing was different from what they required. He eventually conceded that BoU never prepared an inventory list before closing Teefe.
At that point, Dr Louis Kasekende, the BoU deputy governor, told Cosase that when Teefe was closed, there was no legal requirement to maintain an inventory list.
“So, we do not have an inventory. We have provided information relating to the financial institution of Teefe; the assets and liabilities,” Kasekende reportedly told the committee.
Teefe was closed under the repealed Banking Act of 1969. Under section 14 of this repealed law, every bank was required to exhibit throughout the year, in a conspicuous position in every office and branch in Uganda, a copy of its last audited balance-sheet (showing assets and liabilities – which are derived from an inventory).
Failure to maintain a balance sheet and other audited books of account would attract a sanction. In an interview, Katuntu took the view that “it is the balance sheet and those other documents including the inventory that guide BoU to determine whether a bank is insolvent or not."
“An inventory is a detailed list of stock [assets]. So, if that was not available what was the basis of declaring Teefe bank to be insolvent? Maybe, we need to ask more questions that will require us to summon the former officials who were at the centre of these events,” Katuntu told The Observer.
Even then, Katuntu argues that if the inventory was not available during the determination of the insolvency of Teefe bank, acting as a liquidator, BoU should have prepared an inventory.
“When you take over an institution, you take stock of its assets and liabilities… Under the applicable common law then, there was a duty on the part of BoU to act prudently and in good faith. Prudence and acting in good faith demand that you make an inventory when you take stock of an institution because it is on the basis of the same that we can determine whether you acted in good faith,” Katuntu said.
When Cosase resumed on Thursday and Friday last week, the committee learnt that BoU had actually closed Teefe under the Financial Institutions Statute of 1993. Section 31(3) provides that the central bank shall, as soon as possible after taking possession of a financial institution, make an inventory of the assets of the financial institution and shall transmit a copy of it to the minister.
In light of this revelation, BoU gave another response in regard to Teefe’s inventory. Parliament will decide whether indeed, this is the much-sought-after inventory. Indeed, when the committee and Mutebile learnt for the first time that BoU has been holding 21 certificates of title as the residual assets accruing from the liquidation of Teefe bank, everyone’s curiosity was aroused even more.
“It is against the establishment of that motive that we will say that they acted in good or bad faith,” Katuntu told The Observer.
To establish this motive, the committee has requested BoU to provide the two annual supervisory reports on Teefe bank prior to seizure by BoU and the documents upon which BoU determined the insolvency of Teefe bank. On studying these documents, the committee hopes to get a clearer picture of things and thereafter apportion responsibilities.
Next week, we examine what we know so far about the investigations into the closure of six other banks: International Credit Bank Limited, Greenland bank, Cooperative bank, National Bank of Commerce, Global Trust bank and Crane bank.