Court orders Isiolo County to pay Sh675.7m in interest on employee deductions

Isiolo County Government has been instructed by the court to pay Sh675.7 million to the Local Authorities Provident Fund (Lapfund) Board as interest on overdue employee deductions.

Justice Onesmus Makau ruled that Isiolo County and Lapfund had reached an agreement in February 2022 to settle an outstanding principal amount of Sh87 million along with accrued interest.

Despite the scheme's failure to provide the required notice under the Retirement Benefits Act, both parties later reached an amicable settlement, formalised by an agreement signed on February 23, 2022.

“Consequently, I hold that the agreement dated February 23, 2022, between the parties herein was signed voluntarily and is binding upon them. Consequently, the agreed interest on the principal debt is owing from the 1st respondent to the claimant,” Justice Makau ordered.

According to the agreement, the total debt comprised a principal sum of Sh87 million and accrued interest of Sh675.7 million. The county government was required to repay the principal in monthly instalments of Sh8.7 million, with full payment expected by January 2023.

The Lapfund Board initially approached the court in 2021 to compel the county government to remit statutory employee deductions.

However, the Isiolo County Government contested the claims, asserting that it had remitted all statutory deductions in a timely manner.

The court was later informed that subsequent negotiations led to an agreement on the principal debt, but the county government sought a waiver on the interest charges after the case was filed. The request for a waiver remained unresolved until the principal debt was fully paid and a settlement deed was signed.

Lapfund's Board argued that the interest charged was in accordance with Section 53A of the Retirement Benefits Act.

This provision allows for compensation through interest for the loss of potential investment income from the unremitted contributions. The board explained that it had incurred significant financial costs, including borrowing funds to meet its obligations.