On 16th February 2024, the Tanzanian Parliament passed a new regulation known as the Banking and Financial Institution (Compulsory Liquidation) Regulations, GN No 98/2024, which introduces specific regulations to be followed during compulsory liquidation by any bank or financial institution in the United Republic of Tanzania.
The regulation clarifies, supplements, and unifies all significant rules of compulsory liquidation
into a single legislation. The essential issues noted in the Regulations are as follows:
A detailed liquidation process has been provided in Part II as follows:
1. The Appointment of the Liquidator – Regulation 4
The Bank of Tanzania (BOT) is mandated to appoint a liquidator be it an individual or entity after it determines the resolution plan of a bank or financial institution which prefers liquidation. Furthermore, upon the appointment, the Bank will notify the liquidator and cause a General Notice of the appointment to be published in the Government gazette in at least one newspaper of wide circulation in Tanzania.
It should be noted that before the publication of these Regulations, the BOT preferred the appointment of the Insurance Deposit Board (IDB) to be the liquidator of banks and financial institutions based on Section 41 of the Banking and Finance Act No. 5 of 2006. IDB as liquidator has to date liquidated a total of nine (9) banks such as FBME Bank Limited and EFATHA Bank Ltd.
2. Powers of the Liquidator – Regulation 5
The law talks about the capacity given to liquidators in doing a number of activities to ensure the well-being of the intended liquidation such as instituting or defending any action or other legal proceedings, appointing professionals or agents to assist in the performance of the duties as may be required; realize assets and pay creditors; negotiate, compromise, and settle any claim, debt, liability, or obligation; review the existing contracts and determine their continuity; raise on derivatives for any amount of money requisite; set off mutual credits, debts, or mutual dealings which existed prior to its liquidation; invest funds in the liquidation account which are not immediately required in financing day-to-day liquidation operations in Government securities; execute all deeds, receipts, and other documents for the purpose of facilitating liquidation; and perform any other action as may be necessary for liquidation of a bank or financial institution.
3. Duties of the Liquidator – Regulation 6
The liquidator is mandated to ensure that the liquidator files a notice of his appointment in a format prescribed under the Companies Act to the Registrar of Companies within fourteen days. The liquidator will then be required to within thirty days, publish in at least two newspapers of wide circulation in the United Republic of his appointment to enable him to commence his duties.
4. Liquidation Plan – Regulation 7
The liquidator will then be required to prepare a detailed plan as to the status of the bank or financial institution within 30 days of appointment.
5. Proof of Debt – Regulation 8
The law introduces the specific form in the schedule, to be filled by creditors for the proof of their debts to the intended bank of a financial institution to be liquidated.
6. Payment to creditors and ranking of claims – Regulation 11
The law provides a rank as to which creditor will be paid where a priority is on administrative expenses, followed by any deposit liability, then any general or senior liability followed by any obligation subordinated to depositors or general creditors; and finally, any obligation to shareholders.
7. Closure of the liquidation process by liquidator – Regulation 12
For the completion of the liquidation process to be done, a liquidator must prepare a comprehensive
a report detailing all assets realized and payment against claims, in addition, they must show if any assets remained unsold and their value and any unclaimed valuables if any of which will be surrendered to the Bank of Tanzania.
The liquidator will then prepare an audited statement to be submitted to the Bank within 30 days and
thereafter publish liquidation completion details in two newspapers.
After satisfaction, the Bank will issue the certificate of release to the liquidator and upon receiving it, the liquidator will be required to forward the certificate to the registrar of companies so as to strike the name of the bank or financial institution from the register of companies.