Court resets receivership rules in Emerald Hotel Case

Guest post

In a landmark judgment delivered in March 2025, the Court of Appeal of Uganda reset the legal framework for receivership and secured lending, following a long-standing dispute between Barclays Bank (U) Ltd and Emerald Hotel Ltd.

The case, Civil Appeals No. 70 and 72 of 2017, arose from a UGX3.6b credit facility extended by Barclays Bank to Emerald Hotel Ltd. The loan had been secured by a mortgage, a debenture, and personal guarantees. When the borrower defaulted, the bank appointed a receiver, setting off nearly two decades of litigation.

The Court of Appeal overturned major findings of the 2016 High Court decision and clarified several legal principles with far-reaching implications for financial institutions and insolvency practitioners.

Barclays' Claim Was Upheld

The Court upheld Barclays Bank’s UGX4.8b counterclaim in full, including interest at 10% per annum and UGX30m in nominal damages. It dismissed all claims and counterclaims made by the borrower.

This ruling reaffirmed the rights of lenders under properly executed loan and security agreements, providing assurance to financial institutions about the enforceability of their claims.

Court Prioritised Substance Over Technicalities

Despite discrepancies in the borrower’s legal identity—where both Emerald Hotel Ltd and Christal Way Ltd had been used interchangeably—the Court upheld the validity of the receivership and the associated management agreement. It treated the two entities as one, condemning the structure as misleading.

The Court emphasised that where borrowers used artificial arrangements to avoid liability, lenders could rely on the doctrine of piercing the corporate veil to reach the true commercial actor.

Interest Continued During Receivership

The Court rejected the High Court’s position that interest stopped accruing upon the appointment of a receiver. It ruled that, unless explicitly excluded by contract or regulatory treatment, interest on a facility continued even during receivership.

This finding reminded lenders to draft facility letters with clear provisions on interest accrual post-default and to ensure consistency with Bank of Uganda provisioning rules.

Borrowers were required to prove losses

The Court overturned a UGX7b award that the High Court had granted to the borrower for alleged income loss. It criticised the reliance on unaudited financial statements and found no proper evidence to justify the claim.

This decision clarified that damages had to be specifically pleaded and proved—courts would not accept estimates or assumptions in place of hard evidence.

Delays in resolution were criticised

Justice Kiryabwire, in his remarks, condemned the 18-year receivership as excessive, noting that the asset remained in a “sorry state.” He warned that prolonged litigation destroyed commercial value and urged for timely resolution of such matters.

The Court ordered an expedited process to conclude the receivership.

Receiver’s powers were confirmed and refined

The Court confirmed that receivers appointed under debentures had the authority to manage businesses, restructure operations, and enter into commercial agreements necessary for value preservation. However, it also directed the receiver to:

File audited accounts for all hotel operations during the receivership;

1. Sell the hotel within six months;
2. Remit any surplus proceeds to the shareholders.
3. The ruling underscored the importance of transparency, accountability, and adherence to timelines in managing receivership proceedings.
4. A Turning Point in Ugandan Insolvency Law

The Emerald Hotel case marked a turning point in Uganda’s insolvency practice. It restored confidence in creditor enforcement mechanisms while placing new obligations on receivers and borrowers to act with integrity and speed.

Barclays Bank and the Receiver were represented in the High Court and Court of Appeal by a team from Ligomarc Advocates, including Senior Counsel Ruth Sebatindira, Olivia Kyarimpa, and Martin Kakuru.