The High Court in Kampala has dismissed an application seeking to hold company directors personally liable for a debt of USD 13,000 (approximately Shs 49,000,000), ruling that there was no sufficient evidence to justify lifting the company's corporate veil.
In a ruling delivered on March 3, 2026, at the Commercial Division of the High Court, Justice Patience Rubagumya declined to pierce the corporate veil of Nice Star International Limited and make its directors personally responsible for the company's debt.
Nice Star International Limited had applied to court seeking orders that the corporate veil of Nak Shipping be lifted and that its directors, Yasin Mubiru and Kigudde Abdul, be held personally liable for the company's obligations.
The application arose from Civil Suit No. 120 of 2022, in which Nice Star sued Nak Shipping for USD 13,000 (Shs 49,000,000) over an alleged breach of contract relating to shipment of containers in February 2020.
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According to court records, Nice Star filed the suit in March 2022. Nak Shipping was served and even filed an application seeking leave to appear and defend the case, but later failed to pursue it.
On November 9, 2023, the Nakawa Chief Magistrate's Court entered a default judgment in favour of Nice Star for USD 13,000 (UGX 49,000,000), with interest at 10 percent per annum from the date of judgment until payment in full, as well as costs of the suit.
The company's legal costs were later taxed at Shs10,056,900.
However, efforts to execute the judgment proved unsuccessful.
Nice Star told the High Court that attempts to trace Nak Shipping's assets yielded no results. The applicant said documents delivered to the company's registered office in Industrial Area, 7th Street, Kampala were returned, and calls to director Yasin Mubiru allegedly yielded no substantive response.
The applicant further stated that it attempted to execute the decree by arresting Mubiru, but the attempt failed after court ruled that execution could not proceed against a director personally without first lifting the corporate veil.
Nice Star argued that Mubiru, who signed the shipping contract and handled communication, exercises dominant control over the company and was using it as a shield to avoid paying the debt.
The company contended that the conduct of the directors, including alleged non-responsiveness and failure to disclose assets, amounted to improper conduct and that unless the corporate veil was lifted, it would be left without a remedy despite holding a valid judgment.
In response, Mubiru, on behalf of Nak Shipping, opposed the application. He argued that the company, as a separate legal entity, is solely liable for its debts and that directors cannot be held personally responsible for company obligations.
He also said the company had paid USD 4,000 (UGX 15,200,000) prior to the suit and had filed an application to set aside the ex parte judgment in the Chief Magistrate's Court.
The central issue before the High Court was whether there were sufficient grounds to justify lifting the corporate veil of Nak Shipping.
Justice Rubagumya explained that it is a well-established principle of law that a company is a separate legal entity from its directors and shareholders. As a result, they are generally protected from personal liability for company debts.
"It is now trite that a company is a separate legal entity from its members, shareholders and/or directors," the judge stated.
However, the court noted that under Section 18 of the Companies Act, the High Court may lift the corporate veil in exceptional circumstances, such as where there is fraud, tax evasion or other improper conduct.
Justice Rubagumya emphasized that courts only lift the veil where there is clear evidence that the company structure has been abused to conceal wrongdoing or evade liability.
From the evidence presented, the judge found that Nice Star had not proved such misuse.
The court observed that although the applicant claimed it had failed to trace company assets, no concrete evidence was provided to support that claim. There was also no proof that alternative methods of service were attempted as required under the Civil Procedure Rules.
The judge further noted that the applicant itself acknowledged knowing the company's registered address in Industrial Area, 7th Street, Kampala. This, the court said, undermined claims that the directors had hidden or obscured the company's location.
On the claim that Mubiru exercised dominant control over the company, the judge ruled that no evidence had been adduced to show that the company was merely a façade or shell used to shield him from liability.
"No evidence was adduced to show that the 2nd and 3rd Respondents are using the 1st Respondent as a cloak or façade to evade liability or that there was a fraudulent misuse of the 1st Respondent's structure," Justice Rubagumya ruled.
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The court also took note that Nak Shipping had filed an application to set aside the ex parte judgment, meaning the underlying dispute was still being contested.
In conclusion, the judge found that the applicant had failed to demonstrate that Nak Shipping was the "alter ego" of its directors or that it was merely a sham entity created to avoid legal responsibility.
"In the premises, the Applicant has not adduced sufficient evidence to demonstrate that the 1st Respondent was actually the alter ego of the 2nd and 3rd Respondents and not a separate legal entity," the judge held.
The application was dismissed with costs awarded to the respondents.
The ruling means that for now, Nice Star International Limited cannot pursue the personal assets of Nak Shipping's directors to recover the USD 13,000 (Shs 49,000,000). The company will have to continue pursuing execution against Nak Shipping itself, pending the outcome of the application seeking to set aside the default judgment.
The decision reinforces the long-standing legal principle that directors are generally protected from personal liability unless there is clear proof of fraud or abuse of the company structure.
