By: Israel Iya, Legal Assistant & Faith Okiria, Associate

As Uganda continues to implement widespread restructuring of state-owned entities, one legal doctrine is becoming increasingly important—successor liability. Though typically associated with private-sector mergers and acquisitions, successor liability has significant implications for public sector transitions as well.

What is Successor Liability?

 Successor liability arises when a new entity acquires the assets or operations of another and is held responsible for the predecessor’s obligations.  In corporate transactions, this usually plays out in two ways:

(a) Asset acquisitions, where liabilities generally do not transfer, unless exceptions apply.

(b) Mergers, where the new entity typically assumes the predecessor’s liabilities.

Ugandan law, rooted in common law principles, allows for exceptions in asset acquisitions where:

(a) There is an express or implied assumption of liability.

(b) The transaction resembles a de facto merger.

(c) The new entity is a mere continuation of the old one.

(d) The transaction was designed to defraud creditors.

These exceptions exist to prevent companies from evading debts or legal obligations simply by changing their corporate form.

Implications for Government Restructuring.

While the private sector offers a relatively clear framework for successor liability,

applying the doctrine to public sector restructuring is more complex.

Government reorganizations, including the dissolution or merger of agencies, are

typically governed by statutory instruments or constitutional mandates. These laws often detail how liabilities are to be allocated.

Courts in Uganda have been cautious in extending corporate successor liability

doctrines to government entities—mainly to avoid disrupting public services or creating

fiscal instability. In such cases, liability can only transfer if explicitly authorized by statute or defined in contractual terms.

Case Study: Umeme and UEDCL

One timely example is the government’s decision not to renew the concession

agreement with Umeme, instead transferring electricity distribution functions to Uganda Electricity Distribution Company Limited (UEDCL). This transition raised public

debate: had UEDCL inherited Umeme’s liabilities?

The short answer is no.

The Umeme-UEDCL relationship was governed by a concession agreement that outlined each party’s duties, including how outstanding obligations would be handled.

The government was obliged to compensate Umeme for any unrecovered investments, but this is a matter of asset recovery—not liability transfer. Therefore, the doctrine of successor liability did not apply.

Why This Matters.

As Uganda’s public and private sectors continue to undergo structural changes,

understanding successor liability is critical. For policymakers, legal advisors, and investors, it ensures clarity around obligations, protects creditor rights, and promotes fairness and accountability during transitions.