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    Valhalla 3

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    Arthur Amola
    The document discusses the pari passu principle of insolvency law, which requires equal treatment of creditors. It provides three key points: 1) Pari passu means equal proportion and was first established in 1542, endorsing a policy of fairness between creditors. The principle generally requires all non-preferential debts to be treated equally. 2) There are some exceptions allowing bypassing of pari passu, including rights of set off when there are mutual credits/debits, payments to avoid contract termination, and preferential debts like employee wages. 3) While pari passu promotes equality, the author agrees with Arthur that there are ways of bypassing

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    Valhalla 3

    Uploaded by

    Arthur Amola
    38 views4 pages
    The document discusses the pari passu principle of insolvency law, which requires equal treatment of creditors. It provides three key points: 1) Pari passu means equal proportion and was first established in 1542, endorsing a policy of fairness between creditors. The principle generally requires all non-preferential debts to be treated equally. 2) There are some exceptions allowing bypassing of pari passu, including rights of set off when there are mutual credits/debits, payments to avoid contract termination, and preferential debts like employee wages. 3) While pari passu promotes equality, the author agrees with Arthur that there are ways of bypassing

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    Here, we clearly examine the doctrine of paripassu principle and its applicability in Uganda

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    valhalla 3

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    The document discusses the pari passu principle of insolvency law, which requires equal treatment of creditors. It provides three key points: 1) Pari passu means equal proportion and was first established in 1542, endorsing a policy of fairness between creditors. The principle generally requires all non-preferential debts to be treated equally. 2) There are some exceptions allowing bypassing of pari passu, including rights of set off when there are mutual credits/debits, payments to avoid contract termination, and preferential debts like employee wages. 3) While pari passu promotes equality, the author agrees with Arthur that there are ways of bypassing

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    38 views4 pages

    Valhalla 3

    Uploaded by

    Arthur Amola
    The document discusses the pari passu principle of insolvency law, which requires equal treatment of creditors. It provides three key points: 1) Pari passu means equal proportion and was first established in 1542, endorsing a policy of fairness between creditors. The principle generally requires all non-preferential debts to be treated equally. 2) There are some exceptions allowing bypassing of pari passu, including rights of set off when there are mutual credits/debits, payments to avoid contract termination, and preferential debts like employee wages. 3) While pari passu promotes equality, the author agrees with Arthur that there are ways of bypassing

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    © All Rights Reserved
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    of 4

    GULU UNIVERSITY

    NAME: AMOLA ARTHUR ISAAC

    REG No: 18/U/1802/GBL/PS

    COURSE UNIT: INSOLVENCY LAW & COMMERCIAL SECURITIES

    LECTURER: Mr. WATMON BRIAN

    Question

    “…there are no ways of by passing the principle of pari passu under our
    insolvency jurisprudence…” As per Arthur a Partner at M/s Arthur & Co.
    Advocates.

    Required;

    With close reference to the relevant legislations and decided cases, write a
    detailed legal brief critically discussing the above statement.
    RE: DETAILED BRIEF ON THE PARI PASSU PRINCIPLE

    Pari passu means an equal proportion that each creditor is paid pro rata. This
    was first sighted in the Statute of Bankrupts in 1542 implementing the policy
    of equality. The House of Lords per National Westminster Bank plc v
    Halesowen Press works Ltd1 endorses this policy on the balance to ensure
    fair distribution between creditors.

    The general rule on Pari passu stipulates that all creditors are treated on
    equally. This is interpreted by Section 13 of the Insolvency Act that all non-
    preferential debts must be treated equally. However, Justice Sekandi
    augments his dictum per Epaineti Mubiru v Uganda Credit & Saving Bank2
    where he endorses equal treatment to the mortgagor so as to acquire the best
    market value. With reference to the above facts, equality is paramount.

    The mandatory rule under Pari passu acknowledges public policy through
    legislation. This clearly emphasizes both the need for orderly liquidation of
    insolvent’s estates and by requirement of fairness. Justice Obura in her dictum
    endorses this principle per Kitasha Coffee Buyers & Farmers Ltd v
    Muhimbura & Anor3 while denoting that ‘an application is bound to fail
    where one doesn’t come with clean hands.’

    Pari passu principle also adduces time saving through equitable warranties.
    This is sighted by Lord Romilly MR per Re Smith, Knight & Co, exp Ashbury4
    emphasizing that ‘insolvency law takes them equally as it finds them.’ With
    reference to the facts, my view agrees on a balance with regard to the
    mandatory policy of pari passu principle.
    1
    [1972] AC 785
    2
    HCCS No 507/1965
    3
    Miscellaneous Application No 693/2012
    4
    [1868] LR 5
    Contractual obligation is also perceived through Pari passu principle. This
    imposes the various parties with the initiative to honor their contract. Thus,
    Lord Judge James in Ex parte Mackay5 elaborates that ‘a man isn’t allowed by
    stipulation with a creditor to provide for a different distribution of his effects in
    the event of bankruptcy.’ With reference to the profound facts, I assert to the
    inducement of contracts being honored by virtue of the pari passu clause.

    However, to a larger extent there are ways of by passing the Pari passu
    principle as follows;

    Rights of Insolvency set off. This is interpreted by Section 9 of the Insolvency


    Act that applies whenever there have been mutual credits, debits before the
    onset of liquidation. Justice Stephen Mubiru per Guma v Bank of Africa &
    ors6 advocates that where there’s dependency and a contractual relation, this
    purports to setting off.

    Pre-liquidation creditors compel payment by virtue of their ability to inflict


    harm on the inherent estate. This is witnessed by Lord Hoffmann in Kahn v
    Inland Revenue Commissioner7 covering payments to avoid forfeiture of a
    lease or termination of contract.

    Preferential debts related to insolvent’s employees must qualify to the


    assertions on basis of payment. This is interpreted by Section 12 of the
    Insolvency Act that ideally enforces payment of debts incurred exemption
    liquidation. In reference to Re Levi & Co Ltd8, we clearly witness payments
    from creditors whose continued cooperation was enforced.

    5
    [1873] 8 Ch App 643
    6
    Civil Suit No 0013/2008
    7
    [2002] 1 WLR 671s
    8
    [1919 1 Ch 416
    Debts deferred by statute is also a clear manifest. Close reference includes
    debts owed by the insolvent director found liable for fraudulent trading and
    ordered to be deferred by court, hence this is a lee way of bypassing pari
    passu.

    Subordination agreement. Here, the liquidator ought to be entitled to look


    behind a proof to determine whether a creditor submitting proof was entitled
    to payment with others for unsecured creditors. Justice Vinelott in Re
    Maxwell Communications Corporation9 didn’t preclude an agreement
    between parties for the debt to be subordinated, thus equips any creditor with
    the available proof required to sustain any agreement.

    On a balance, I affirm to Arthur that the general rule on Pari passu principle
    negates equality as the fundamental core however, we can clearly witness
    other alternatives towards bypassing the principle.

    Yours sincerely,

    AMOLA ARTHUR ISAAC

    9
    [1993] 1 WLR

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