Court of Appeal ruling reshapes insolvency and banking law in Uganda — Experts

Emerald Hotel case delivers landmark win for lenders, sets new rules for receivership and credit enforcement

Kampala, Uganda | THE INDEPENDENT |  A landmark decision by the Court of Appeal in the long-running Emerald Hotel case has redefined the legal terrain for secured lending and insolvency practice in Uganda, experts say, offering a significant victory to financial institutions and placing new obligations on receivers and borrowers.

The judgment, delivered in March in Civil Appeals No. 70 & 72 of 2017, overturned a 2016 High Court decision and upheld a UGX 4.8 billion counterclaim by Barclays Bank (now Absa Uganda) against Emerald Hotel Ltd. The ruling also dismissed all claims by the borrower and reaffirmed the bank’s right to recover interest at 10% per annum, along with UGX 30 million in nominal damages.

The dispute stemmed from a UGX 3.6 billion credit facility extended by the bank in 2001. After the hotel defaulted, a receiver was appointed to manage the asset—triggering litigation that dragged on for nearly two decades.

Strengthening Creditor Rights

In its ruling, the court firmly upheld the enforceability of secured lending agreements, sending a strong message in favour of lender rights. Legal experts say the decision is a significant boost for banks, which have long struggled with drawn-out legal disputes and asset recovery challenges.

“This decision restores clarity and confidence in the financial sector,” said Ruth Sebatindira SC, who led the legal team representing the receiver. “It affirms that banks can enforce their rights under properly executed facility and security agreements.”

Corporate Veil Pierced

In a key finding, the Court disregarded the formal separateness of two companies—Emerald Hotel Ltd and Christal Way Ltd—used interchangeably by the borrower. Judges ruled that the dual structure was a deliberate attempt to evade liability and treated the two as one.

Legal analysts say the ruling empowers financial institutions to challenge such artificial structures through the veil-piercing doctrine, particularly where borrowers attempt to shield assets through corporate layering.

Interest Accrues During Receivership

Contradicting the High Court’s earlier position, the Court of Appeal ruled that contractual interest continues to accrue during receivership unless explicitly excluded or limited by regulation.

“This ruling highlights the need for facility letters to include clear provisions on post-default interest,” said Olivia Kyarimpa, one of the case’s advocates. “It also underlines the importance of regulatory compliance when classifying non-performing loans.”

No Proof, No Damages

The Court overturned an earlier UGX 7 billion damages award to the borrower, criticising the reliance on unaudited internal financial statements to claim loss of income. The judges emphasized that damages must be both specifically pleaded and supported by credible evidence.

“This decision sets a new standard for commercial claims,” said co-counsel Martin Kakuru. “Courts will no longer entertain vague or speculative damage claims.”

Receivership Cannot Be Indefinite

The Court expressed dismay that the hotel had remained under receivership for 18 years, calling the situation “absurd.” Justice Geoffrey Kiryabwire noted the corrosive effect of delay on asset value and ordered the expedited sale of the hotel within six months. Any surplus after loan recovery is to be returned to shareholders.

The receiver was also directed to file audited accounts covering the entire period of control over the hotel.

Receivers’ Powers Affirmed, But Bound by Duty

The ruling confirmed that receivers appointed under debenture agreements have full authority to manage, restructure, and enter into contracts aimed at preserving or enhancing asset value. However, the Court stressed the need for transparency, record-keeping, and adherence to timelines.

“The judgment creates clear boundaries and responsibilities for receivers,” said Sebatindira. “You must act decisively, but also with integrity and accountability.”

Implications for the Sector

Observers say the ruling will have far-reaching implications for Uganda’s banking, insolvency, and commercial litigation landscape. It is expected to improve confidence in the enforcement of security interests and strengthen the hand of financial institutions facing reluctant borrowers or poorly structured insolvency processes.

The case was argued by a legal team from Ligomarc Advocates, comprising Ruth Sebatindira SC, Olivia Kyarimpa, and Martin Kakuru, who represented the receiver and Barclays Bank at different stages of the litigation.