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Compulsory Liquidation of a Bank or Financial Institution

Legal Alert

By Sadock Dotto Magai and Libent Rwazo


On February 16, 2024 the Bank of Tanzania (the Bank) issued and published for the first time a subsidiary legislation on compulsory liquidation of banks and financial institutions. The Banking and Financial Institutions (Compulsory Liquidation) Regulations, 2024 was published in the Government Gazette of the Government of Tanzania No. 42, Vol 105, as Government Notice number 98, the date of which is as already indicated. It was promulgated by the Governor of the Bank pursuant to powers conferred under section 71 of the Banking and Financial institutions Act (the Banking Act).

The Banking and Financial Institutions (Compulsory Liquidation) Regulations, 2024

The regulations now empower the Bank to appoint any qualified person to act as a liquidator upon occurring of events as stipulated in the Banking Act and these Regulations. The Regulations mandate the Bank to appoint a liquidator of a bank or financial institution upon passing a resolution plan calling for liquidation as shall be determined by the Bank. The trigger effects of the resolution plan are as indicated in the Banking Act, which evolves around insolvency of a bank or financial institution. What the Regulations underscore for the first time is that now the Bank is not going to assume total liability of an insolvent bank or financial institution. The liquidator so appointed by the bank will have the mandate as indicated under the Companies Act, though reporting directly to the Bank.

The appointment by the Bank of a liquidator qualifies as an appointment by the Court. Therefore, the liquidator so appointed will now be responsible not only under the Banking Act but also must comply by the Company laws and Regulations governing liquidators.

It is also important to note that a liquidator will be responsible to pay creditors out of the proceeds of sale of assets of the insolvent bank or financial institution. Off course depositors maximum amount insured will continue to be covered and protected by the Deposit Insurance Fund managed by the Deposit Insurance Board. However, at the moment, depositors may get more if sale of the assets of the distressed bank or financial institution can fetch more in the kit.

Take Aways

This is a positive development on the part of the Bank to do away with direct management of every insolvent institution in the banking and financial sector. It is a good development for the Bank to embrace companies law principles and practice on liquidation of banks and financial institutions.