Online Reporter
Trust Maanda
Legal Position
THE principle of separate legal personality is fundamental to company and trust law.
A company or trust is recognised in law as distinct from its members, shareholders, or trustees.
However, courts in exceptional circumstances will “pierce” or “lift” the veil and hold the persons behind the entity liable.
The High Court’s decision in Mugauri and Another v Tropical Resources Ecology Programme (TREP Trust) and Others provides a recent Zimbabwean restatement of when this extraordinary remedy is available.
A juristic entity possesses legal personality separate and distinct from those who control it.
This principle serves commercial and institutional purposes: certainty, predictability, and limitation of liability.
For trusts, the law is that rights and obligations vest in the trustees, not in the trust itself as an abstract entity.
However, this principle is not absolute.
In limited circumstances, courts will disregard the veil to prevent abuse. The courts will disregard the veil of incorporation in circumstances such as fraud, dishonesty or improper conduct.
Piercing is justified where there is fraud, dishonesty or other improper conduct. The remedy exists to prevent abuse of the corporate or trust form.
This means that the entity must have been used as a device to perpetrate fraud. E.g. incorporating a company to defraud creditors, then stripping assets. There must be dishonest use of the structure to hide true ownership or liability.
In Mugauri, the court found no evidence that TREP Trust was created as a sham in 2002 to avoid future liabilities. The timing mattered.
A trust or company created long before any dispute arose is less likely to be seen as fraudulent.
The Applicants failed because they could not show the Trust was set up to evade obligations to them. Mere close involvement was not enough.
Courts will pierce where the entity has no real independent existence and is merely the “alter ego” of those controlling it or it is used as a sham or facade.
In Mugauri, Applicants argued the Trust was the University’s alter ego because: it was established by the University; trustees were senior University officials including the Vice Chancellor; it operated from University premises; used University letterhead; and was administered through University structures.
The court rejected this. It held that control alone is insufficient to justify piercing. It is common for universities, NGOs, and parent companies to establish trusts/companies and staff them with their officials to facilitate research or programs. That does not collapse the legal distinction.
To be a façade, there must be evidence the entity was a shell with no independent decision-making, assets, or purpose other than to conceal the controller.
Thus, to have the veil pierced, for both companies and trusts, you must prove the entity was a mere shell used to mask the real actor to evade legal obligations.
The impropriety must be linked to the obligation sought to be enforced. Courts will look at:
1. Was the entity interposed after the obligation arose to defeat it?
2. Was there a transfer of assets to the entity to make the debtor judgment-proof?
If yes, the veil may be lifted. If the entity predates the dispute and was not created for that purpose, courts are reluctant. To pierce the veil, there should be evidence that “failure to pierce the veil would result in fraud or manifest injustice.”
The difficulty of enforcing a judgment against a trust or company is not, in itself, a ground for piercing the corporate veil.
Manifest injustice requires more: e.g. where creditors are left with nothing because directors deliberately stripped a company, or beneficiaries are deprived because trustees hid behind the trust to avoid fiduciary duties.
Close institutional relationships of parent or holding companies and their subsidiaries are common. The fact that a parent “established” the subsidiary or trust and its officials sit as trustees or directors does not, without more, automatically merge them.
For piercing, you need evidence the parent treated the subsidiary’s assets as its own, ignored corporate formalities, and used it to commit wrongdoing.
For trusts you pierce to reach a third party behind the trust only if you can prove the trust is being abused as that third party’s façade.
Piercing the corporate veil in Zimbabwe is an “exceptional remedy”. For both companies and trusts, an applicant must prove more than association or control. The threshold is abuse: fraud, dishonesty, use as a sham to evade obligations, or manifest injustice directly linked to misuse of the entity.
In practice this means you must provide evidence of impropriety, not just structural links and how the misuse of separate legal personality caused your prejudice.
This is because when a company is incorporated or a trust is formed, they become distinct institutions, separate from those that form it. Only when the veil of incorporation is abused, will the court disregard the veil to visit personal liability on those behind it.
TRUST MAANDA is a legal practitioner and a partner at Maunga Maanda And Associates. He writes in his personal capacity. He can be contacted on +263772432646
