Introduction and Background
1. Before the Court is a Notice of Motion dated 8th October 2024 in which the applicant seeks to pierce the corporate veil of the 1st respondent company. The application is premised on the grounds set out in the supporting affidavit of Josphat Maina Gichuki, sworn on even date.
2. The applicant contends that the 1st respondent is a shell entity with no known office, has failed to satisfy a decree in CMCC No. 6423 of 2016 issued on 16th November 2021. The applicant contends that the company was allegedly incorporated to carry out unlawful activities.
3. The application is opposed through a replying affidavit sworn by the 2nd respondent, who is the Managing Director of the 1st respondent company. He attributes the closure of the company’s office to the effects of the COVID-19 pandemic and states that the company is undergoing financial strain. However, he asserts that the company remains a going concern and continues to trade. He has provided Bank statements and KRA tax returns to support this assertion.
4. He further avers that the 1st respondent was incorporated on 18th July 1994 and has operated for over 20 years before the subject transactions, thereby rebutting the suggestion of it being a fraudulent or sham entity.
Analysis and Determination
5. The doctrine of separate legal personality as established in Salomon v Salomon & Co. Ltd [1897] AC 22 remains foundational in company law. The lifting or piercing of the corporate veil is an exceptional remedy available only where it is demonstrated that the company is being used as a façade to conceal wrongdoing, evade legal obligations, or perpetrate fraud.
6. As held in Corporate Insurance Co. Ltd v Savemax Insurance Brokers Ltd [2002] 1 EA 41, courts will only disregard the corporate veil where there is compelling evidence of impropriety. The veil of incorporation may therefore be lifted where the company is a mere sham or where it is used to defeat public convenience, justify wrong, protect fraud or defend crime.
7. In the present case, the applicant has not tendered any cogent evidence of fraud, illegality, or misuse of the corporate structure. The assertion that the company was incorporated to carry out unlawful activities is not supported by any factual basis. On the contrary, the 1st respondent has demonstrated that the company continues to trade and comply with statutory and tax obligations, during its long-standing existence. Mere financial difficulty or inability to satisfy a decree, without more, is not a ground to pierce the corporate veil.
8. In the absence of any proven fraud or improper conduct, the application lacks merit.
Final Orders
9. Accordingly, the Notice of Motion dated 8th October 2024 is hereby dismissed with costs to the respondents.
DATED, SIGNED AND DELIVERED IN MOMBASA
THIS 19TH DAY OF MAY 2025.
F. MUGAMBI
JUDGE
1. Before the Court is a Notice of Motion dated 8th October 2024 in which the applicant seeks to pierce the corporate veil of the 1st respondent company. The application is premised on the grounds set out in the supporting affidavit of Josphat Maina Gichuki, sworn on even date.
2. The applicant contends that the 1st respondent is a shell entity with no known office, has failed to satisfy a decree in CMCC No. 6423 of 2016 issued on 16th November 2021. The applicant contends that the company was allegedly incorporated to carry out unlawful activities.
3. The application is opposed through a replying affidavit sworn by the 2nd respondent, who is the Managing Director of the 1st respondent company. He attributes the closure of the company’s office to the effects of the COVID-19 pandemic and states that the company is undergoing financial strain. However, he asserts that the company remains a going concern and continues to trade. He has provided Bank statements and KRA tax returns to support this assertion.
4. He further avers that the 1st respondent was incorporated on 18th July 1994 and has operated for over 20 years before the subject transactions, thereby rebutting the suggestion of it being a fraudulent or sham entity.
Analysis and Determination
5. The doctrine of separate legal personality as established in Salomon v Salomon & Co. Ltd [1897] AC 22 remains foundational in company law. The lifting or piercing of the corporate veil is an exceptional remedy available only where it is demonstrated that the company is being used as a façade to conceal wrongdoing, evade legal obligations, or perpetrate fraud.
6. As held in Corporate Insurance Co. Ltd v Savemax Insurance Brokers Ltd [2002] 1 EA 41, courts will only disregard the corporate veil where there is compelling evidence of impropriety. The veil of incorporation may therefore be lifted where the company is a mere sham or where it is used to defeat public convenience, justify wrong, protect fraud or defend crime.
7. In the present case, the applicant has not tendered any cogent evidence of fraud, illegality, or misuse of the corporate structure. The assertion that the company was incorporated to carry out unlawful activities is not supported by any factual basis. On the contrary, the 1st respondent has demonstrated that the company continues to trade and comply with statutory and tax obligations, during its long-standing existence. Mere financial difficulty or inability to satisfy a decree, without more, is not a ground to pierce the corporate veil.
8. In the absence of any proven fraud or improper conduct, the application lacks merit.
Final Orders
9. Accordingly, the Notice of Motion dated 8th October 2024 is hereby dismissed with costs to the respondents.
DATED, SIGNED AND DELIVERED IN MOMBASA
THIS 19TH DAY OF MAY 2025.
F. MUGAMBI
JUDGE