The High Court has made a decision against a Ugandan businessman and his company, instructing them to repay over 10 billion shillings owed to a lender based in Mauritius.
This ruling highlights a growing issue where Ugandan businesses and individuals borrow money from international lenders but later dispute the agreements to avoid repaying the loans.
Kare Distribution Ltd, along with its managing director and principal shareholder, Geoffrey Karegyeya, have been directed to pay 11.5 percent interest on the outstanding amount from August 2019 until the debt is fully settled. Presently, Mr. Karegyeya and his company owe the lender, African Rivers Limited (ARL), more than 17.2 billion shillings, including interest.
In a decision made on March 25 by High Court judge Anna B. Mugenyi, Mr. Karegyeya and his company were also ordered to cover the court costs.
According to court documents, Kare Distribution Limited initially approached ARL through its local agent, XSML Capital Uganda Limited, seeking a loan of $1,650,000 (approximately 6.4 billion shillings) to purchase property in Kampala from Canaanze Construction Limited.
ARL agreed to provide the loan at an interest rate of 11.5 percent per annum, which was acknowledged by Kare Distribution Ltd. Evidence presented in court revealed that XSML Capital is an investment fund manager focusing on frontier markets in East and Central Africa, managing the African Rivers Fund (ARF).
The loan was secured with a legal mortgage over the purchased property and the personal guarantee of Mr. Karegyeya. Subsequent loan agreements were made between ARL and Kare Distribution Limited, with Karegyeya signing off on disbursement requests for the loan amounts.
However, Kare Distribution Limited defaulted on servicing and repaying the loans according to the agreed terms. Consequently, ARL demanded repayment of the outstanding amount, along with accrued interest, and issued a Notice of Default regarding the security held under the Mortgage Act.
During the court proceedings, Mr. Karegyeya and his company failed to provide evidence challenging the legitimacy of the lending transactions. In fact, Mr. Karegyeya left the court during the hearing, effectively abandoning the defense. As a result, the court deemed the lending agreements and guarantee deed to be legal and enforceable.
This ruling aligns with a precedent set by the Supreme Court regarding the legality of syndicated lending transactions between foreign institutions and Ugandan borrowers. Chief Justice Alfonse Owiny-Dollo affirmed that it is lawful for foreign financial institutions to extend credit facilities to individuals or entities in Uganda, and such agreements are binding.
In recent years, there have been several similar disputes involving Ugandan businesses and international lenders, indicating a common occurrence of financial disagreements attempting to evade substantial loan obligations.
