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ELRCDismissedELRC Cause (Notice of Motion dated 9th July 2019)· [2020] KEELRC 1658 (KLR)

Ancent Mumo Kalani v Nairobi Business Ventures Limited [2020] KEELRC 1658 (KLR)

Employment and Labour Relations Court
29 January 2020
HWHellen Wasilwa
3,868 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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A Kenyan court refused to make company directors pay an employee's award personally because mere insolvency is not fraud.

What this practically means

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Executive summary

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The Claimant, Ancent Mumo Kalani, obtained a decree for Kshs. 305,910/= plus interest against Nairobi Business Ventures Ltd and, having failed to execute, filed a Notice of Motion dated 9th July 2019 under Rule 32 of the ELRC (Procedure) Rules, 2016, Order 22 rule 35 of the Civil Procedure Rules and the Companies Act. He sought orders that eight named Shareholders/Directors attend court for oral examination on the judgment debtor's assets, that they personally satisfy the decree, and that warrants of arrest and committal to civil jail issue against them. He alleged the directors were concealing assets, fraudulently disposing of proclaimed goods, fraudulently/wrongfully trading, and abusing the corporate personality, relying on authorities such as Peter O. Ngoge v Ammu Investment, Githunguri Dairy Farmers and Joseph Isagi Nyando. The Respondent, through its Director Abotula Venkata Satyanarayana Vasu, denied concealment, averring it closed operations in January 2019 owing to reduced business, holds only minimal bank credit balances, had assets confiscated by landlords, and urged that insolvency alone cannot justify lifting the corporate veil, citing Corporate Insurance Co. Ltd v Savamax and Vimal Velji Shah v Chemafrica. Wasilwa J held that the Claimant had not identified any unlawful act or omission by the directors, that the veil cannot be lifted merely because a company is unable to pay its debts, and that the veil can only be pierced where directors use the corporate entity to defeat public convenience, justify wrong, protect fraud or defend crime. Finding no evidence of fraud or transfer of property to defeat the Claimant, the Court dismissed the application on 29th January 2020. No express costs order appears in the judgment.

Key legal issues

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Whether the corporate veil of the judgment debtor should be lifted to hold directors personally liable for the decree

Holding

The application was dismissed; mere inability to pay a decree is not a ground for lifting the corporate veil, and no fraud or improper conduct by the directors was demonstrated.

Reasoning

The Court noted that the Claimant sought to have the directors personally liable and examined. It applied the principle that a company is a separate legal entity and that the veil is lifted only where directors use the corporate notion to defeat public convenience, justify wrong, protect fraud or defend crime. The Claimant did not specify any unlawful act or omission by the directors, and the Respondent explained its insolvency through closure of business, debts, and confiscation of assets by landlords.

p. 5

Legal principles established

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  • The corporate veil cannot be lifted merely because a company has no assets or is unable to pay its debts
  • The corporate veil may only be lifted where directors use the corporate entity to defeat public convenience, justify wrong, protect fraud or defend crime

Court orders

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  1. 1.The application dated 9th July 2019 is dismissed

Authorities

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Legislation

  • Employment & Labour Relations Court (Procedure) Rules, 2016Rule 32
  • Civil Procedure RulesOrder 22 rule 35
  • Companies Actrelevant provisions
  • Auctioneers Rules, 1997Rule 14
  • Auctioneers Rules, 1997Rule 12(1)(a)
  • Civil Procedure ActSection 38
  • Employment ActSection 2

Cases cited (15)

  • Peter O. Ngoge T/A O P Ngoge & Associates –v- Ammu Investment Company Limited
    [2012] eKLR
  • Standard Chartered Bank Kenya Limited vs. Intercom Services Limited & 4 Others
    Civil Appeal No. 37 of 2003 [2004] 2 KLR 183
  • Salomon vs. A. Salomon & Company Ltd
    [1897] AC 22
  • Adams vs. Cape Industries Plc
    [1990] 1 Ch 433
  • Mugenyi & Company Advocates vs. The Attorney General
    [1999] 2 EA 199
  • Githunguri Dairy Farmers Co-operative Society –v- Ernie Campbell & Co. Ltd and another
    [2018] eKLR
  • VTB Capital PLC v Nutritek International Corp & Another & 3 Others
  • Kenya Hotels & Allied Workers Union –v- Sheshe Beach Resort T/A Tabora Enterprises Ltd & 2 others
    [2015] eKLR
  • Joseph Isagi Nyando –v- Imagine IMC Ltd
    [2018] eKLR
  • Corporate Insurance Co. Ltd –v- Savamax Insurance Brokers Ltd & anor
    HCCC No. 125 of 2002
  • Carey Ngini –v- Dennis O. Ogolla & another
    [2010] eKLR
  • Pamba Ong'weno Amila v John Juma Kutola
    [2015] eKLR
  • Vimal Velji Shah –v- Chemafrica Ltd & 5 others
    [2016] eKLR
  • Solomon Muriithi Gitandu & another –v- Jared Maingi Mburu
    [2017] eKLR
  • Rosana Pluda -V- Phillip Kipchirchir Moi
    Nairobi Divorce Cause 154/2008 (unreported)
Jurisdiction invoked
Rule 32 of the Employment & Labour Relations Court (Procedure) Rules, 2016 as read together with Order 22 rule 35 of the Civil Procedure Rules and the relevant provisions of the Companies Act No.17 of 2015

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Ancent Mumo Kalani v Nairobi Business Ventures Limited [2020] KEELRC 1658 (KLR)", Case Analysis (2020). ELRC Cause (Notice of Motion dated 9th July 2019). Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2020/1658/eng@2020-01-29

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.