” CORPORATE AND COMMERCIAL ALERT “
Introduction
The case of Vantage Mezzanine Fund II Partnership versus Uganda Registration Services Bureau & 4 others Civil Appeal No. 263 of 2022 stemmed from a high-value financing transaction.
Vantage Mezzanine Fund II Partnership “Appellant”, a South African-based private equity fund structured as a partnership extended loan facilities to several Ugandan companies in the Simba Group.
When repayment issues arose, the Appellant initiated legal action to enforce its rights. The High Court dismissed the matter on the basis that the Appellant, being a foreign partnership, had not registered in Uganda as required by the Business Names Registration Act (“BNRA”) and the Partnerships Act, 2010. (“PA”)
The key question before the Court of Appeal was whether foreign partnerships must be registered in Uganda to have the legal presence and locus (capacity) to initiate proceedings regarding enforcement of securities provided in support of indebtedness. The appeal focused on the meaning and application of registration requirements for foreign partnerships.
The Court’s decision
Court held that foreign partnerships need not be registered under the PA and/or the BNRA to enforce their rights under contractual documents or seek redress before the courts to enforce their rights. The Court of Appeal reversed the High Court decision and provided a detailed interpretation of the registration requirements of foreign partnerships under Ugandan law:
a) Carrying on Business in Uganda: Court explained that section 4 of the PA and sections 2 and 3 of the BNRA require registration where a partnership has ongoing business activity. The business must already be already in existence/ running.
b) This term was therefore interpreted to mean continuous or ongoing commercial activity not isolated or incidental transactions..
c) The Court stressed that mere extending loans or making investments by a partnership from outside Uganda does not amount to carrying on business locally to trigger the registration requirements under the BNRA and PA respectively.
d) Place of Business: The BNRA applies to partnerships with a ‘place of business’ in Uganda. The Court clarified that this refers to a physical address or operational presence such as an office or premises from which business is conducted. The Court went on to qualify that a foreign entity merely having contractual relations with Ugandan companies does not establish a place of business that requires registration within the BNRA and PA The Appellant did not have offices, employees or operations in Uganda; its involvement was purely as a foreign lender thus, the legal duty to register did not arise.
Practical takeaways
a. Registration of a foreign partnership is triggered by presence: A foreign partnership must only register under Ugandan law if it sets up an office or conducts continuous business operations locally.
b. Foreign partnerships intending to maintain a presence in Uganda should factor registration into their business planning however, those intending to do a one off transaction need not register in Uganda simply because entering into a contract, lending money or investing from abroad does not require registration.
c. Confidence for Local Parties: Ugandan counterparties can deal with foreign partnerships confidently knowing that non-registration does not invalidate transactions where no local presence exists.
Disclaimer:
This publication is for general consumption and should not be taken and relied upon without seeking specific legal advice on any of the matters above.