Lending unit 9

1. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
1
Module 3: Lending

2. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
LEARNING OUTCOMES
After completion of this study you should be
able to:
• Articulate the role of lending in the banking business
• Discuss the various aspects of a typical bank lending
cycle and highlight the key issues at each stage
• Explain the meaning of insolvency, bankruptcy and
receivership from the viewpoint of the lender.
2

3. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Lending in the Banking Business
General Principles of Good Lending
Types of Advances to Customers
The Practice of Lending
Securities for Advances
Corporate, Retail and Mortgage Lending
MODULE COVERAGE
3
Typical remedies for Defaulting Borrowers
Insolvency, Receivership and its Effects
Implications of Receivership

4. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Acts of Bankruptcy: In Uganda, a debtor commits an act of bankruptcy in
each of the following cases:
o If in Uganda or elsewhere he or she makes a conveyance or
assignment of his or her property to a trustee for the benefit of his
or her creditors generally
o If in Uganda or elsewhere he or she makes a fraudulent conveyance,
gift, delivery or transfer of his or her property, or of any part of the
property
o if in Uganda or elsewhere he or she makes any conveyance or
transfer of his or her property, or any part of the property, or creates
any charge on it, which would constitute a fraudulent preference if
he or she were adjudged bankrupt
o if with intent to defeat or delay his or her creditors he or she does
any of the following things: departs out of Uganda; being out of
Uganda remains out of Uganda; departs from his or her dwelling
house,; or otherwise absents himself or herself, or begins to keep
house
4

5. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
o If execution against him or her has been levied by seizure
of his or her goods in any civil proceeding in any court, and
the goods have been either sold or held by a bailiff for
twenty-one days.
o If he or she files in the court a declaration of his or her
inability to pay his or her debts or presents a bankruptcy
petition against himself or herself
o If a creditor has obtained a final decree or final order
against him or her for any amount and execution on the
final decree or final order not having been stayed, has
served on him or her in Uganda or, by leave of the court,
elsewhere, a bankruptcy notice.
o If the debtor gives notice to any of his or her creditors that
he or she has suspended, or that he or she is about to
suspend, payment of his or her debts.
5

6. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Implications of receivership
There are many implications of a receiver being appointed (which may
be by court, by a creditor/ lender or by a group of creditors). For
this course, we shall mention a few that are the most relevant to
bankers.
i. The receiver takes charge of the affairs of the borrower/ debtor.
ii. For a company, the receiver replaces Board and Management in
terms of decision making.
iii. The receiver in a sense becomes an agent, who has to exercise duty
of care and utmost good faith, to creditors, government, suppliers
and other stakeholders.
iv. The receiver must abide by certain provisions of the law that relates
to insolvency and receiverships and must call on all creditors to
prove their debts within a certain period of coming to office.
v. When acting as a trustee, the receiver many have powers
equivalent to those of a trustee in bankruptcy.
6

7. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
The duties of a receiver are:
• To investigate the conduct of the debtor and to report to the
court, stating whether there is reason to believe that the debtor
has committed any act which constitutes an offence.
• To make such other reports concerning the conduct of the
debtor as the court or appointing creditor(s) may direct.
• To take such part as he or she may deem fit in the public
examination of the debtor.
• To act as interim receiver of the debtor’s estate, and, where a
special manager is not appointed, as manager of the estate.
• To authorize the special manager to raise money or make
advances for the purposes of the estate in any case where, in
the interests of the creditors, it appears necessary so to do.
7

8. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
The duties of a receiver…
• To summon and preside at the first meeting of creditors.
• To issue forms of proxy for use at the meetings of
creditors.
• To report to the creditors as to any proposal which the
debtor may have made with respect to the mode of
liquidating his or her affairs.
• To advertise the receiving order, the date of the creditor’s
first meeting, and of the debtor’s public examination and
such other matters as it may be necessary to advertise.
• To act as trustee during any vacancy in the office of
trustee.
8

9. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Implications and effects of bankruptcy
While the overall and detailed effects of bankruptcy are the subject of a law volume of
over 150 pages, the following indicative ones give some idea:
o On the making of a receiving order, the official receiver shall be thereby
constituted receiver of the property of the debtor
o A secured creditor can still realize or otherwise deal with his or her security in the
same manner as he or she would have been entitled to realize or deal with it if
there had been no bankruptcy
o The debtor’s affairs and business communication get redirected to the receiver or
trustee
o Proof of debts – all creditors has to prove their debts owing from the debtor
o There is a right to mutual credit and setoff by the receiver or trustee for proved
debts
o The landlord has power of distress in case of bankruptcy – by distraining goods for
rent
o Postponement of claims of relatives – Payment to any relatives may be postponed
under bankruptcy
o In carrying out any transactions with any party, the bankrupt must disclose his/ her
status as an undischarged bankrupt
9

10. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Priority of debts
In the distribution of the property of a bankrupt, there is in priority to all
other debts. These are:
a) All taxes and local rates due from the bankrupt at the date of the receiving
order, and having become due and payable
b) All rents payable to Uganda Land Commission or a district land board
(c) All wages or salary, whether or not earned wholly or in part by way of
commission, of any clerk or servant in respect of service rendered to the
bankrupt during four months before the date of the receiving order,
d) All wages of any laborer or worker not exceeding a certain amount
e) All amounts due in respect of compensation under the Employment Act
the liability for which accrued before the date of the receiving order
(g) All amounts due in respect of contributions payable during the twelve
months immediately preceding the date of the receiving order by the
bankrupt as the employer of any person under the National Social Security
Act.
10

11. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
END
11