Court Orders Sale of Emerald Hotel over ABSA Loan

Kampala, Uganda – The Court of Appeal has directed the appointed receiver to audit and sell Emerald Hotel in Kampala within six months under court supervision.

This decision overturns a prior High Court judgment that had awarded substantial damages to Emerald Hotel Limited and its affiliates, despite their breach of loan agreements with Barclays Bank of Uganda Ltd (now Absa).

Background The dispute originated from credit facilities amounting to over Shs 4bn extended by dfcu bank (later taken over by Barclays Bank) to Emerald Hotel Ltd, secured through mortgages, debentures, and third-party properties.

Following defaults on these loans, the bank appointed Kabiito Karamagi as receiver and entered into a management agreement with Shumuk Properties Ltd to oversee the hotel’s operations.

Emerald Hotel challenged these actions, alleging procedural irregularities and fraud, while the bank accused the borrowers of deceptive practices, including registering two companies under the same name to impede loan recovery efforts.

Emerald Hotel and its directors contested the receivership, arguing that the appointment of the receiver was invalid and constituted unlawful interference with their property.

They claimed that the bank, in collusion with Shumuk Properties, took possession of the hotel in bad faith and without proper notice.

They further alleged that the appointment of the receiver and the management contract with Shumuk were “designed not to recover the loan but to dispossess them of the hotel.”

The borrowers also contended that they had “reached a compromise” with the bank prior to the receivership and accused the bank of breaching that arrangement.

Additionally, they denied any “fraudulent intent” regarding the registration of two companies with identical names.

Bank’s position In response, Barclays Bank defended the legality of the loan documents and the receivership process.

The bank argued that the borrowers had failed to meet their repayment obligations despite multiple restructuring attempts and extensions.

It maintained that all legal procedures had been followed and accused the borrowers of attempting to evade their financial responsibilities through technicalities and corporate misdirection.

The bank highlighted that the directors of Emerald Hotel had deliberately misled it by registering two companies with nearly identical names—“Emerald Hotel Ltd” and “Emerald Hotel (U) Ltd”—to frustrate loan enforcement.

Barclays asserted that this misrepresentation justified lifting the corporate veil to hold the individuals involved personally liable.

Furthermore, the bank defended its decision to appoint a receiver, stating it was lawfully executed under the terms of the debenture, and that the management agreement with Shumuk was in the best interest of preserving the hotel’s value pending recovery.

Court’s Findings and Ruling The Court of Appeal upheld the bank’s position, finding that Emerald Hotel had defaulted on its obligations and that the loan instruments were valid and enforceable.

“Stripped to its “bare bones”, this Appeal is a sad narrative of a company Emerald Hotel Ltd) which borrowed money from a bank (DFCU Bank) failed to pay it back and then borrowed from a second bank (Barclays Bank) and again failed to pay the loan back,” ruled Justice Kiryabwire.

“The company then created an alternative narrative that its failure to meet its loan obligations was the fault of the bank. As it is, the Lady of justice though blind folded has seen through all of this. Failure to pay off credit facilities does not allow for the smooth running and expansion of business.

Unfortunately, in this case this loan has lost all commercial sense as a result of the above; being 18 years in default and the hotel structure still stands but in a sorry state,” the judge added.

“As earlier stated, credit facilitates the smooth running and expansion of business. However, in this case the credit facility is no longer making commercial sense by reason of passage of time, this Court will focus on bringing to an end this insolvency while at the same time trying to preserve as much value of the asset as possible.”

The court determined that the registration of two companies with identical names was a “deliberate attempt to mislead and evade” the bank’s rights, warranting the lifting of the corporate veil.

It also concluded that the appointment of the receiver and the management agreement were “lawfully executed within the powers granted under the loan instruments.”

Consequently, the appellate court set aside all damages previously awarded to Emerald Hotel and its affiliates. Instead, it awarded Barclays Bank Shs 4.8 billion, along with nominal damages of Shs 30 million, both accruing interest.

The court further directed the receiver to conduct an audit and proceed with the sale of the hotel under judicial supervision within six months.

This judgment not only clears the path for the sale of Emerald Hotel but also sheds light on the sanctity of commercial contracts and possible consequences of corporate misrepresentation.

The six-month window for the supervised sale is expected to bring finality to the dispute.