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Kizito & Another v Shumuk Properties Limited & 2 Others (CIVIL SUIT NO. 304 OF 2013)

High Court · [2019] UGHCCD 249 · 2019 Judgment for Plaintiffs AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit for recovery of unpaid salary arrears and benefits by former employees of Dairibord (U) Ltd following receivership and asset sale
Decision
Suit succeeded against third defendant only; first and second defendants not held liable

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held that under Employment Act s.48, employee wage claims have statutory priority over other claims upon insolvency or winding-up of an employer's business for the 26 weeks preceding the declaration. Where a bank mortgagee sold assets of an insolvent company and received proceeds, the mortgagee was liable to pay employee salary arrears that should have been prioritised from those proceeds. The failure to cater for salary arrears when taking over and selling property of the insolvent employer constituted an illegal, unfair and unjust scheme to deprive employees of remuneration for work done. Third defendant bank liable; first and second defendants who purchased assets without directly dealing with the employer not liable.

Outcome

Suit succeeded against third defendant only; first and second defendants not held liable

Facts

The plaintiffs, representing 38 other former employees of Dairibord (U) Ltd, were laid off on 20 April 2009 after Dairibord was put under receivership by the third defendant (DFCU Bank) without receiving salary arrears totalling Ug. shs: 103,487,247.80. By agreement dated 17 February 2010, the third defendant sold Dairibord's plant, equipment, land and building assets to the first defendant (Shumuk Properties Ltd) for USD 1,200,000. Under a prior consent judgment in Civil Suit No. 112 of 2009, proceeds from the asset sale were to be shared 80:20 between the third defendant and Dairibord, after an initial priority payment of Ug. shs: 1,400,000,000 to the third defendant. The third defendant received money from the sale but failed to pay the plaintiffs their outstanding salary arrears despite demand. The third defendant claimed it disbursed Dairibord's 20% share to pay utilities and other expenses at Dairibord's directive. Dairibord ceased operations and is no longer a going concern.

Issues

  1. Whether the plaintiffs are entitled to payment from the Defendants the sum of Ug. shs: 103,487,247.80/= being salary arrears and benefits.
  2. Which of the Defendants is responsible for payment of the Plaintiffs' claim.
  3. What remedies are available to the plaintiffs.

Orders

  • The third Defendant shall pay the plaintiffs salary arrears of Ug. shs: 103,487,247.80/=.
  • Interest on the salary arrears at a rate of 15% per annum from 17th February 2010 when the final sale of Dairibord was made till payment in full.
  • Each of the plaintiffs is awarded general damages of Ug. shs. 10,000,000/= for the pain, suffering, inconvenience and psychological torture.
  • The plaintiffs are awarded costs of the suit to be paid by the third Defendant.

Rules and key headnotes

Employment & Labour — Priority of Employee Wage Claims — Insolvency and Receivership
Under section 48 of the Employment Act 2006, notwithstanding any other law to the contrary, on the bankruptcy or winding-up of an employer's business, the claim of an employee for wages and other payments to which he or she is entitled under the Act shall have priority over all other claims which have accrued in respect of the twenty-six weeks immediately preceding the date on which the declaration of bankruptcy or winding-up is made.
Employment & Labour — Liability for Unpaid Wages — Receiver or Mortgagee Selling Assets of Insolvent Employer
Where a receiver or mortgagee sells assets of an insolvent company and receives proceeds from that sale, but fails to prioritise and pay employee salary arrears as required by law, that receiver or mortgagee becomes liable for the unpaid salary arrears. The failure to cater for employee salary arrears in the process of taking over and selling the property of their employer points to a grand scheme to illegally, unfairly and unjustly deprive employees of their remuneration for work done, which the court will not protect.
Employment & Labour — Liability for Unpaid Wages — Purchaser of Assets from Insolvent Company
Purchasers who buy assets from a receiver or mortgagee as part of an agreement between the insolvent company and the receiver, but who do not directly deal with the insolvent company itself, cannot be held liable for unpaid salary arrears owed to employees of the insolvent company.
Employment & Labour — Damages and Interest — Unpaid Salary Arrears
Where employees have suffered pain and inconvenience through the years without payment of their salary arrears, they are entitled to general damages for that suffering. They are also entitled to interest on their salary arrears because they could have invested their money or used it gainfully if they had received it in time. However, where general damages are awarded for inconvenience, an interest rate that may result in unjustified enrichment should be moderated.
Administrative Law — Equity and Justice in Distribution of Assets — Insolvency
Even in the absence of a formal receivership process, where parties are dealing with an insolvent company which they are selling, it is fair, just and equitable to apply the protections envisaged under insolvency law for employees. Under sections 98 and 33 of the Civil Procedure Act and Judicature Act respectively, equity and the interest of justice require that on the final sale of an insolvent company's properties, employee salary arrears should be prioritised and paid.

Legislation cited (5)

Full judgment

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Kizito & Another v Shumuk Properties Limited & 2 Others (CIVIL SUIT NO. 304 OF 2013) [2019] UGHCCD 249 (17 May 2019)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.