High Court Reaffirms That a Bankruptcy Petition Must Be Supported by Evidence to Prove Inability to Pay and Justify Stay of Execution

Waboga David
May 18
4 min read

Brief of the case of Allan Makula and Others v I-Engineering Uganda Limited (Miscellaneous Application No. 0191 of 2024) [2025] UGHCCD 57 (13 May 2025)

Area of Law: Civil Procedure-Bankruptcy Proceedings

Introduction

A bankruptcy petition, in the context of Ugandan insolvency law, is a legal mechanism through which an individual debtor formally declares their inability to pay debts and seeks relief from the court to reorganize or discharge their financial obligations.

As articulated by Justice Nshimiye in In the matter of a Debtor's petition for individual bankruptcy and in the matter of a petition for a Receiving Order by Kyozaire Joyce (Debtor) (Bankruptcy Petition 3 of 2023) [2024] UGHC 17 (29 January 2024), the essence of such a petition is to invoke the court’s intervention so that the debtor can manage their affairs without the imminent threat of imprisonment by creditors. The court emphasized the role of bankruptcy proceedings in balancing the debtor’s right to relief with creditors’ right to fair notice and participation.

Under Part III of the Insolvency Act, particularly Section 20(1) and (2), a debtor may petition for bankruptcy where they are unable to pay their debts or have failed to satisfy a statutory demand. The process is further governed by the Insolvency Regulations, 2013, which outline critical procedural requirements, including:

Filing a verified statement of affairs using Form 7 (Reg. 21);
Supporting the petition with an affidavit (Reg. 10);
Serving the petition on all known creditors (Reg. 11); and
Giving public notice of the petition within seven working days (Reg. 13).

Upon compliance with these requirements, the court may direct a public examination under Section 22 of the Insolvency Act, during which the debtor is examined on their financial affairs and property. Notice of this examination must be served on the Official Receiver at least fourteen working days in advance (Reg. 22).

This legal framework is central to understanding the procedural posture and judicial reasoning in the present matter, where the applicant, having filed a bankruptcy petition, sought a stay of execution of a consent decree.

However, as discussed in the ruling below, compliance with bankruptcy procedures alone does not automatically justify equitable relief such as a stay, especially where statutory execution processes have not yet been exhausted.

Facts

In an application, the 1st Applicant sought a stay of execution of a consent judgment entered in HCCS No. 488 of 2018, pending the determination of his bankruptcy petition (HCT-00-CV-IP-0006-2024). The application was made under Section 98 of the Civil Procedure Act, Section 33 of the Judicature Act, and Order 22 Rule 23, among others.

Applicant’s Case

The applicant argued that:

A consent judgment was entered on 9 March 2022, in which he accepted sole liability for UGX 1.56 billion, while claims against the 2nd to 4th applicants were withdrawn.
He agreed to the consent under duress, fearing imprisonment for debt.
Despite selling all his belongings, he has only managed to pay UGX 80 million and is unable to clear the balance.
He has since filed for bankruptcy, and the petition is still pending.
The stay of execution is necessary to avoid injustice and was brought without undue delay.

Respondent’s Opposition

The Respondent, through an affidavit by Ahmed Labib, opposed the application on grounds that:

The applicant willingly consented to the judgment and is bound by it.
He has ongoing business interests and income streams, suggesting ability to pay.
The bankruptcy petition is a bad-faith tactic to avoid execution and frustrate enforcement.
The applicant misused funds and transferred assets to third parties.
There is no sufficient cause to justify a stay of execution.

Representation

Applicants: Mugarura Jamil
Respondent: Marion Namutuhirwe

Key Issue:

Whether the applicant disclosed sufficient grounds to warrant a stay of execution.

Court’s Analysis:

The applicant argued that their pending bankruptcy petition justified a stay and relied on on the decisions of KCB Bank v. Gichohi Ngari & 2 Ors, CA No. 0323 of 2023 – which held that poverty-stricken debtors should not be imprisoned unless they deliberately or negligently refuse to pay.

And National Union of Clerical, Commercial, Professional and Technical Employees v. National Insurance Corporation, SCCA No. 17 of 1993 – which affirmed the court’s residual and inherent powers under Sections 98 and 101 of the Civil Procedure Act.

The respondent countered that no grounds for stay existed as there was no pending appeal, application to set aside the consent judgment, or other substantive challenge to the decree.

The court agreed.

Court’s Holding

The Court found that:

The applicant did not satisfy the traditional grounds for a stay, as there was no pending appellate or review process.
Invoking inherent powers under Section 98 of the CPA requires sufficient cause and proper procedure, neither of which was established here.
A bankruptcy petition alone does not amount to proof of inability to pay—that must be established through evidence and proper proceedings.
The proper course would have been to apply for interim relief within the bankruptcy petition or raise objections during the Notice to Show Cause stage under execution proceedings.

The Court emphasized that allowing the application at this stage would amount to an abuse of process and would prejudice the judgment creditor.

Conclusion

The application for stay was dismissed with costs. The Court advised the applicant to either seek interim relief through the bankruptcy proceedings or present sufficient cause during the Notice to Show Cause hearing.

Key Takeaway

A pending bankruptcy petition does not automatically justify a stay of execution. Proper procedure and clear evidence of inability to pay are essential. Inherent powers of court cannot be invoked prematurely or to circumvent due process.