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ELRCDismissedCause No 781 of 2015· [2021] KEELRC 990 (KLR)

Mcdonald Charo & 36 others v Bofa Maweni Limited [2021] KEELRC 990 (KLR)

Employment and Labour Relations Court
23 September 2021
LNLinnet Ndolo
1,229 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~5 min to read original · ~4 min brief

The bottom line

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A Kenyan court refused to make a director personally pay a company's judgment debt, ruling that hidden assets alone don't justify lifting the corporate veil.

What this practically means

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Executive summary

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The Claimants, having obtained judgment against the Respondent Company and being unable to trace any attachable assets, applied by Notice of Motion dated 10th June 2021 for the corporate veil of the Respondent to be lifted and for the decree to be executed personally against Shahbaz Khan. The application followed an earlier order for Khan's examination under Order 22 Rule 35 of the Civil Procedure Rules, which the Claimants abandoned after he indicated he had no documents or access to the company's records. Khan opposed the Motion, asserting he had resigned as director a year before the suit was instituted, challenging the authenticity of the CR 12 produced by the Claimants (noting it incorrectly described him as a Kenyan citizen), and maintaining that personal liability of directors requires proof of fraud and that the veil can be lifted only sparingly in special circumstances such as misconduct. The court framed a single issue: whether the Claimants had made out a case for lifting of the corporate veil and for pursuit of Khan to settle the decretal sum. Relying on Salomon v Salomon and Kenyan authorities including Corporate Insurance Co. Ltd v Savemax Insurance Brokers, Kolaba Enterprise Ltd v Shamsudin Hussein Varvani and Michael Kyambati, the court held that the veil is lifted only upon fraud or misconduct of equal gravity, not merely because a company has no assets or is insolvent. The Claimants' inability to trace assets and their frustrations at the failed examination did not meet the threshold. The Motion was dismissed with each party bearing their own costs.

Key legal issues

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01

Whether the corporate veil of the Respondent Company should be lifted and the decree executed personally against Shahbaz Khan

Holding

The application fails; the Claimants did not demonstrate fraud or special circumstances justifying lifting of the veil.

Reasoning

The court applied Salomon v Salomon and subsequent Kenyan authorities holding that a company's separate legal personality can only be departed from where statute or law provides for it, such as where directors use the company as a vehicle for fraud or criminal activity. Mere inability to trace the company's assets, and the fact that Shahbaz Khan claimed he had resigned as director and had no access to company records, did not satisfy the threshold. Failure of an Order 22 Rule 35 examination does not itself warrant lifting the veil.

p. 2
02

Whether Shahbaz Khan's failure to produce books of accounts as ordered justified personal liability

Holding

No; disobedience or non-production without proof of fraud is not a ground for lifting the veil.

Reasoning

The Claimants argued that Khan deliberately failed to produce books of accounts and should therefore settle the decretal sum. The court held that lifting of the veil is not commonplace and requires fraud or misconduct of equal gravity, which was not demonstrated. The Claimants' inability to execute against company assets is addressed by other legal remedies, not by saddling directors with the company's debts.

p. 2

Legal principles established

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  • The corporate veil will only be lifted in the face of fraud or some other misconduct of equal gravity, and not merely because a company is insolvent or has no attachable assets

Court orders

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  1. 1.The Claimants have failed to establish grounds for lifting of the corporate veil and the Motion dated 10th June 2021 cannot succeed
  2. 2.Each party will bear their own costs

Authorities

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Legislation

  • Civil Procedure RulesOrder 22 Rule 35

Cases cited (4)

  • Salomon v Salomon & Co Ltd
    (1897) AC 22 HL
  • Corporate Insurance Co. Ltd v Savemax Insurance Brokers Ltd & another
    HCCC No. 125 of 2002
  • Kolaba Enterprise Ltd v Shamsudin Hussein Varvani & another
    [2014] eKLR
  • Michael Kyambati v Principal Magistrate, Milimani Commercial Courts, Nairobi & another
    [2016] eKLR
Jurisdiction invoked
Supervision of execution proceedings arising from a decree in the Employment and Labour Relations Court, including examination under Order 22 Rule 35 of the Civil Procedure Rules

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, "Mcdonald Charo & 36 others v Bofa Maweni Limited [2021] KEELRC 990 (KLR)", Case Analysis (2021). Cause No 781 of 2015. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2021/990/eng@2021-09-23

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