What Does The Administration Of Uganda Telecom Limited Mean For Creditors And Other Stakeholders?

The recent administration of heavily indebted Uganda Telecom Limited ("UTL") aims to achieve the best outcome for creditors and shareholders. Below, we unpack the implications of the administration for UTL's creditors and other stakeholders.

According to media reports, UTL's troubles started as far back as 2011, with its performance characterised by heavy indebtedness, decline in market share, losses due to inadequate investment, competitive pressures, a dilapidated network and governance challenges. This was further exacerbated by the Libyan crisis, which saw its majority shareholder being sanctioned by the United Nations.

Following unsuccessful negotiations between the Ugandan government and the majority shareholders of UTL (the majority shareholder declined to avail further funding), UTL passed a special resolution agreeing to make a settlement with its creditors, appointed a provisional administrator and applied for an interim protection order from the court. These actions effectively placed UTL under provisional administration.

UTL's provisional administration was the first of its kind under the Insolvency Act, 2011 and presents a good opportunity to test looming insolvencies. When a company enters provisional administration, a provisional administrator is appointed to take over control and custody of the company's assets. This is in order to achieve one of his/her statutory duties, namely the survival of the company and the whole or part of its undertaking as a going concern, the approval of the administration deed or a more advantageous realisation of the company's assets than would be achieved in a liquidation.

The provisional administrator is required to prepare, and present to the creditors for their consideration and decision, a proposal on how to conduct the administration. The creditors must then decide to either execute an administration deed (in which case the company goes into administration), liquidate the company or end the administration (in which case the company transitions to liquidation). Regardless of the creditors' decision at this meeting, the provisional administration terminates at that point. At UTL's creditors' meeting, which was called to consider the provisional administrator's proposals, the majority of its creditors voted in favour of placing UTL under administration. UTL executed its administration deed on 22 May 2017, which, in effect, placed UTL in administration.

Administration has different...

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