Director liability for corporate debts (“lifting the corporate veil”)

A High Court case Musa Shaibu Msangi v Sumry High Class Limited and Another [2016] TLS LR 430 shows that directors can be held personally liable for the debts of their companies (even when no suggestion of a guarantee by a director exists).

In brief:

1. Applicant had been trying to enforce for 1 year a decree against the respondent company judgment debtors for payment of about TZS 179,000,000 (about USD 80,000).
2. Respondent companies had acted and transacted business through the respondent director.
3. Applicant sought to lift the corporate veil and enforce against the directors or shareholders of the company judgment debtors.
4. Court confirmed that long standing principle of corporate personality as legal personality separate and distinct from the directors or shareholders of the company is not absolute and can be lifted in “exceptional circumstances”.
5. Court noted that “one solid year” had elapsed and not “a single cent” had been paid by the company judgment debtors and so the court was “highly persuaded” that the directors were neglecting to pay the debt.
6. Respondent director not permitted to hide behind the corporate veil to evade personal liability for debts of companies.
7. Court gave the director 30 days to pay the amount due.