Q&A – 2 March 2020

Winding up of company

I am a director in a manufacturing company that has been totally drained with assessment after assessment from the tax authority in addition to pressure from creditors who have suddenly cropped up. It is quite unfortunate as the company was doing well until the very strict approach taken by the authorities. The company is having one issue after another and there is now no hope of recovery with the directors and owners having no interest in continuing. It is even worth for us to pack up and go as we have no real assets left, the machinery already being heavily depreciated and the property under a lease. How do we put this company to rest properly?
FO, Dar

It seems like the company is technically insolvent. That being the case, the Companies Act provides for winding up of the company by the company. Whilst this sounds like a straight forward process, it must be noted that third parties including contributories are allowed to be part of these proceedings. Banks and other interested persons may also join the petition for winding up as this is advertised.

The High Court is the Court with competent jurisdiction to entertain such a petition. After hearings, it is likelier than not that in your case ultimately a liquidator will be appointed with powers to sell moveable and immoveable properties, to look at ranking of creditors and the like. Remember that the liquidator becomes the all-powerful person although she/he is subject to the control of the Court.

You must note that if this is a usual business failure, criminality is not an issue. However, if the directors or management have been involved in internal mischief, they could be held liable and be personally responsible including being criminally prosecuted. Winding up is not a process that will spare any fraud or theft. It puts a company to rest, but one must also come with clean hands.

Strange laws

I am at our law school and find the laws very strange. The law doesn’t compel one to say the truth, but if you do not say the truth you can get into real trouble including going to jail. My thoughts are that atleast someone attempted to speak out, but untruthfully, as opposed to someone who just refused to speak which should also be made criminal. I also find the law like a spider’s web which lets the big mosquitoes through and only catches the small ones.
HD, Dar

In relation to your first thought, we believe it is not a question so we don’t really have an answer! All we can say is that your observation is quite valid, but it depends on the setting and the situation, and must be discussed on a case to case basis. Whilst you cannot compel one to speak the truth, there are some statutes that, nowadays, compel one to speak or report and not speaking or reporting becomes an offence. Hence your observation is not universally correct.

As for your analogy of mosquitoes and the spiders web, we believe it is the failure of the law if that happens. The law is supposed to apply equally to everyone and cannot choose between the big and the small. Everyone must be treated equally. Having said that, the approach to law is not always fair and there are big mosquitoes who indeed get away with a lot!

Exemption clauses in contracts

There are contracts that try and exempt one party of the contract from almost everything. You go the gym, and it says you are working out at your risk. If you go to the parking lot, you park at your risk. Hospitals make you sign forms before going to surgery and even you, lawyers, make us sign documents with no liability on your side. Few days ago, a medicine instruction pamphlet said that I use it at my own risk. Now how would I know if the medicine is safe or not. Condoms also have all these instructions and disclaimers that no one bothers reading, and in any case imagine reading the condom instruction panel in front of your girl. I find all this very crazy. Why does the law allow such strange clauses to be included? What is the position of the law?
JF, Mwanza

You have made some valid observations. These exemption clauses do come under greater scrutiny by Courts because they are standardised, are in small print and at times are quite one sided. Just because they appear, doesn’t make them valid. For them to be valid please note the following.

First, such an exemption clause must have been put forward before, or at the time the contract came into force. Hence, if you checked into a hotel, and only saw a notice in the room with an exemption clause, that exemption clause was brought to your attention after the entering into of the contract and hence not valid. Secondly, you must consider whether the clause covers the breach which occurred and any doubt or ambiguity in interpretation will be interpreted against the person trying to rely on the clause.

Third, if this is a standard contract term, it should have been registered by the Fair Competition Commission, a no-nonsense body in Tanzania. If not registered, it makes it challengeable.

Fourth, there is a test of reasonableness that applies. The more unreasonable the exemption clause, the higher the chances that notwithstanding you agreed to it, that it may be rejected by the Courts. Fifth, some specific statutes disallow such blanket liability clauses in regulated industries. Hence, if there is negligence by a Doctor, or a lawyer, then such blanket exemption clauses will not assist them much. What such clauses tend to assist is to reduce the liability but not necessarily eliminate it.

As a last word of caution, notwithstanding you might not want to read the condom exemption clauses because of the ‘circumstances’, you cannot blame the other party if you choose not to read at all. Hence, it is always advisable to read and not ignore the fine print.