Appeal Court rejects bid by directors to hide behind corporate veil in debt recovery case » Capital News

NAIROBI, Kenya, Jul 28 — The Court of Appeal has declined to grant a stay of execution sought by real estate firm Shady Acres Limited and its directors, David Muriuki Mambo and Rose Mambo, against a High Court decision that lifted the company’s corporate veil, allowing creditors to pursue the directors personally for a debt.

In a ruling delivered by Justices Patrick Kiage, Jamila Mohammed, and Weldon Korir, the appellate court dismissed the application as “unmerited,” finding that the applicants had failed to demonstrate that they had an arguable appeal.

“The applicant has not demonstrated that it has an arguable appeal,” the three-judge bench stated on Friday, adding that the High Court orders had already taken effect and execution was underway.

The case stems from a long-running dispute between Shady Acres Limited and Silver Construction Company Limited, which provided construction services for a real estate project on L.R. No. 209/20735.

A consent judgment entered in December 2020 required Shady Acres to use proceeds from the sale of apartments to settle the debt owed to Silver Construction, but the court heard that the company failed to honor the agreement.

In its application, Shady Acres had argued that Justice Mabeya’s ruling, delivered by Justice Francis Gikonyo in January, improperly lifted the company’s corporate veil without a formal application.

‘Extreme alarm’

The firm’s director, Mambo, also claimed that a newspaper article titled “Court Holds Real Estate Firm Directors Liable for Debt” had caused “extreme alarm among clients and shaken its creditworthiness.”

However, the court rejected these claims, noting that the veil-piercing process began with an earlier order by the late Justice David Majanja in June 2022, which directed that the directors be examined on the company’s means to settle the debt and allowed execution against them personally in default.

“Absent proof of an appeal having been lodged against that ruling and orders, we take them to be final,” the judges said.

The court further observed that execution had already commenced, rendering the stay application moot.

Silver Construction’s lawyer, Kelvin Mogeni, had opposed the application, terming it “frivolous and intended to delay settlement of a lawful judgment.”

The bench ultimately dismissed the application with costs, effectively clearing the way for Silver Construction to proceed with recovery against the company and its directors.