Companies owed money by third parties may be referred to as creditors, which can be loosely divided into three categories, namely, unsecured, secured and preferential.
An Unsecured Creditor: is one who, upon giving credit, takes no right against specific property of the debtor, also termed a general creditor. Such creditors include trade creditors, contractors, consultants and shareholders of a company.
A Secured Creditor: is one who, after receiving collateral in its favour, has the right, on the debtor’s default, to proceed against a registered collateral and apply it to the payment of its debt. A company normally creates collateral in favour of banks, and or asset-based lenders.
A Preferential Creditor: is one who has a superior right to payment from assets realized from holders of securities created over a company’s asset(s). Preferential creditors include employees of a company (excluding directors), Government Institutions and/or Executive Agencies, such as, Tanzania Electric Supply Company Limited and Tanzania Revenue Authority (hereinafter referred to as “the TRA”).
Section 106 of the Companies Act, Number 12 of 2002 of the laws of Tanzania (as amended from time to time) (hereinafter referred to as “the Companies Act”) gives powers to creditors to appoint a receiver pursuant to the terms and conditions of a registered instrument, and that receiver is required, within seven (7) days from the date of order of such appointment, to give notice of that fact to the Registrar of Companies.
Where a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge, or possession is taken by or on behalf of the holders of any of the debentures of any property comprised in or subject to the charge, and that company is not at that the time in the course of being wound up, the company's preferential debts shall be paid out of the assets coming to the hands of the person taking possession in priority to any claim as stated in section 95 of the Companies Act. This section also defines preferential debts to mean those categories of debts listed under section 367 of the Companies Act, as detailed herein below,
Section 66 of the Tax Administration Act, Chapter 438, Revised Edition of 2019 of the laws of Tanzania (hereinafter referred as “the Tax Administration Act”) requires that a person appointed as a receiver of a company delivers a written notice to the Commissioner General of the TRA (hereinafter referred as “the Commissioner General”), within fourteen (14) days from being appointed or taking possession of an asset situated in the United Republic. The Commissioner General may serve a receiver with a written notice specifying an amount that appears to be sufficient to provide for any tax due or that will become due by the taxpayer whose assets come into the receiver’s possession. Therefore, upon receipt, the receiver shall sell sufficient assets that come into his/her possession under the receivership, set aside, after payment of any debts having priority over the tax referred to in the notice, the amount notified by the Commissioner General on account of the taxpayer’s tax liability.
An indebted company, when assessing its debts, should consider the classification of its creditors, and the same applies to receivers appointed under a security instrument, such that those which are classified as preferential debts be given priority as they are protected by statute, without there being a need for any preferential creditor to register its interest/lien over any of that company’s assets.
Section 367 of the Companies Act lists the following as preferential debts: -
a) all Government taxes, local rates and customs and excise duties due from a company at the relevant date and having become due and payable within twelve months next before that date;
b) all Government rents not more than one year in arrears; and
c) all wages or salary (whether or not earned wholly or in part by way of commission) of any employee not being a director in respect of services rendered to a company during four months next before the relevant date.
Conclusion:
Based on the foregoing, it is imparative to note that the appointment of a receiver by a secured creditor under a particular security instrument, which has been duly perfected and/or registered at the relevant registries pursuant to the provisions of the Companies Act, does not preclude a preferential creditor, such as the TRA, having a valid and substantiated claim, to take measures allowing its claim to rank higher in priority in relation to that of a preferential creditor.
By Nuruh Mwandambo.
