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Tanzania decisions
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The High Court lifted the corporate veil of the respondent company and held its managing director personally liable for a neglected decretal debt.
The trial court erred in lifting the corporate veil without sufficient evidence of fraud, sham, or misuse of corporate structure; respondent failed to discharge the burden of proof regarding the 1st appellant's lack of assets; improper design alone is not a valid ground for veil lifting; liability cannot be imposed solely on one director without proper justification.
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The applicants failed to establish that the respondents transferred, concealed, or removed property, or committed acts of bad faith to obstruct execution of the decree. Mere non-payment is insufficient to warrant lifting the corporate veil or ordering arrest and detention as civil prisoners. No convincing grounds were advanced to justify the orders sought.
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The High Court of Tanzania lifted the corporate veil of the respondent company, allowing the decree holder to execute against the company’s directors.
The application fails because the applicant did not provide cogent evidence of fraud, sham, alter ego, concealment, or evasion by the respondent company or its directors, nor did he implead the directors or shareholders against whom personal liability is sought. Lifting the corporate veil is an exception, not the rule, and requires substantiated grounds.
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The court found that the applicant's evidence of concealment or transfer of company property by directors was uncontested, and that both 1st and 2nd respondents are directors of the 3rd respondent. In light of untraceable assets and admitted directorship, the court held it justifiable to lift the corporate veil and hold the directors personally liable for satisfaction of the labour award.
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The applicant satisfied all three legal conditions for stay of execution: timely application, risk of substantial loss if stay is refused, and commitment to provide security. Therefore, a stay of execution is warranted pending appeal, conditional upon deposit of security.
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The applicant's uncontroverted affidavit established that the 2nd respondent, as director of the 1st respondent, concealed company assets to obstruct execution of the decree, constituting special circumstances justifying lifting the corporate veil and holding him personally liable for the unsatisfied judgment.
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A director who was not a party to the original suit and against whom the decree was not issued cannot be detained as a civil prisoner for the company’s debt unless the corporate veil is first lifted by a separate application establishing special circumstances.
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The 2nd Respondent is using the corporate structure to defeat execution of a lawful award; justice requires lifting the corporate veil to hold the 2nd Respondent personally liable for the judgment debt.
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