1.0 Introduction
A company may owe you money, but its separate legal personality does not necessarily place the individuals behind it beyond your reach. Where a director, shareholder or third party has personally guaranteed the company’s obligations, where the circumstances justify imposing personal liability, or where legislation expressly provides for such liability, there may be a lawful route to recovering the debt from the individual’s personal assets.
Consider a company that obtains a substantial facility from a financial institution. Its managing director signs the facility documents on behalf of the company and also executes a personal guarantee, undertaking to repay the debt if the company defaults. Following default, judgment is obtained against the company, but its assets are insufficient to satisfy the judgment. The creditor then discovers that the managing director, who is also a shareholder, owns substantial personal assets. Can the creditor proceed against those assets simply because the director controls the company? The answer is no, but the creditor may have other legal remedies. The key is to establish the proper basis for personal liability and identify the appropriate enforcement mechanism. This article examines how a creditor can navigate that process and turn a judgment into actual recovery.
2.0 The Corporate Veil Does Not Protect A Personal Guarantor
The starting point is the principle of separate legal personality. Upon incorporation, a company becomes a legal person distinct from its shareholders, directors and promoters. This principle, now recognised under section 42 of the Companies and Allied Matters Act 2020, is rooted in the celebrated decision in Salomon v. Salomon & Co Ltd (1897) AC 22 and has repeatedly been affirmed by Nigerian courts, including the Supreme Court in Marina Nominees Ltd v. Federal Board of Inland Revenue (1986) 2 NWLR (Pt. 20) 48.
The consequence is important, as a director or shareholder is not personally liable for the company’s debt merely because he owns, manages or controls the company. The corporate veil is therefore a genuine legal protection and not something a creditor can simply disregard because the company has become unable to pay. However, there are recognised circumstances in which personal liability may arise, and they include:
- Personal obligation or guarantee: Black’s Law Dictionary defines a guarantee as a collateral agreement by which a person undertakes responsibility for the payment of a debt or performance of an obligation if the primary obligor fails to do so. Where a director, shareholder or third party undertakes an obligation, evidenced by a personal guarantee, his liability arises from that separate contractual undertaking and not merely from his relationship with the company. A valid personal guarantee is therefore one of the most commercially significant bases upon which a creditor may proceed against an individual for a company’s debt.
- Fraud, improper conduct, or statutory liability: The court may lift the corporate veil when a company is used to perpetrate fraud or to shield wrongdoing. In Oyebanji v. State (2015) 14 NWLR (Pt. 1479) 270, the Supreme Court affirmed that the veil may be lifted where the evidence establishes that a company was used as a cover for fraudulent conduct. Section 316 of the Companies and Allied Matters Act 2020 provides for the personal liability of a director or officer who, with intent to defraud, fraudulently misapplies or fails to apply money or property received by the company for a specific purpose or project. A company’s failure to fulfil its contractual obligations, without evidence of fraud or other circumstances justifying the lifting of the corporate veil, does not by itself make a director personally liable.
A personal guarantee is therefore particularly important when enforcing a company’s debts against individuals. A personal guarantor assumes a contractual obligation independent of his status as a director or shareholder. This distinction is critical because a managing director who executes a guarantee in his personal capacity assumes liability not merely by virtue of his position as a director, but by reason of the separate contractual undertaking he has given to the creditor.
The Court of Appeal’s decision in Obikoya v. Wema Bank Ltd. (1991) 7 NWLR (Pt. 201) 119 is particularly instructive. The Court held that the guarantor’s liability arose when the principal debtor defaulted, and demand was made, but also stressed that the guarantor could not be held beyond the strict terms of the guarantee. In that case, the guarantor’s liability was limited to the amount guaranteed.
Thus, whether the guarantor is a director, shareholder, promoter, relative of the company’s owners, or an entirely unrelated third party is largely immaterial; what matters is the undertaking contained in the guarantee and the terms upon which the guarantor’s liability crystallises. Before enforcement is commenced, the guarantee should therefore be examined carefully for its monetary limit, whether it is continuing, the circumstances constituting default, whether demand is required, applicable interest and costs, and any conditions precedent to enforcement.
3.0 Enforcement Must Begin With Asset Identification
The practical lesson is that enforcement should not begin with the question, “What process should we file?” It should rather begin with, “What assets does the judgment debtor have, where are they, and how can they be reached?” In practice, obtaining judgment is only one part of the recovery process. A creditor may still have to contend with the debtor dissipating or concealing assets, or maintaining insufficient funds in identifiable bank accounts. These challenges make early identification of the guarantor’s assets particularly important when planning enforcement. For a personal guarantor, this may involve identifying:
- bank accounts and receivables;
- landed properties and rental income;
- vehicles, machinery and other valuable movables;
- shares or interests in businesses;
- debts owed to the guarantor by third parties; and
- assets held through related entities or intermediaries where there is a proper legal basis for tracing or enforcement.
The choice between garnishee proceedings, writ of fieri facias, judgment summons, bankruptcy or sequestration should therefore be driven by the nature and location of the assets, rather than by a one-size-fits-all approach.
4.0 From Personal Liability To Actual Recovery
Establishing that a guarantor is personally liable is only half the battle. The next question is “how does the creditor actually recover the judgment debt from the guarantor?” There is an important procedural distinction to bear in mind. Where judgment has been obtained only against the company, the creditor cannot ordinarily enforce that judgment against the guarantor’s personal property merely because the guarantor signed the company’s facility documents. The guarantor’s personal liability must first have been established, whether in the original proceedings or through appropriate subsequent proceedings.
Once liability has been established and judgment has been entered against the guarantor, the creditor may then pursue available enforcement mechanisms against the guarantor’s assets. These include:
- Garnishee Proceedings
Where the guarantor has money standing to his credit with a bank or another third party, garnishee proceedings may be appropriate under section 83 of the Sheriffs and Civil Process Act (SCPA). The process ordinarily begins with an Order Nisi, followed by an opportunity for the garnishee to show cause, and, where appropriate, the Court may grant an Order Absolute directing payment to the judgment creditor. This is particularly useful where the creditor has identified the guarantor’s bank accounts, receivables or other debts due to him. It also illustrates why asset tracing should begin before initiating recovery proceedings. A creditor who knows where the guarantor banks, where his receivables are held and what third parties owe him is in a much stronger enforcement position. See C.B.N. v. Ochife (2025) 12 NWLR (Pt. 2000) 1.
- Writ of Fieri Facias (Fi. Fa.)
A writ of fieri facias (Fi. Fa.) is a principal means of enforcing a money judgment under section 20(1) of the SCPA. It permits execution against the judgment debtor’s property, including movable assets such as vehicles, machinery and other attachable goods under section 25 of the SCPA. Where the movable assets are insufficient to satisfy the judgment debt, enforcement may extend to the debtor’s immovable property. Section 44 of the SCPA permits the judgment creditor, where sufficient movable property cannot be found, or the property found is insufficient, to apply for execution against the debtor’s immovable property.
In Saleh v Monguno (2006) 15 NWLR (Pt. 1001) 26, the Supreme Court affirmed the need to obtain the requisite leave and comply with the prescribed procedural safeguards before proceeding against immovable properties. Similarly, in Cole v Jibunoh (2016) 4 NWLR (Pt. 1503) 499, the creditor, having realised only ₦15,812.50 from the debtor’s movable property against a judgment debt of ₦169,000, subsequently obtained an order for the attachment and sale of the debtor’s immovable property to satisfy the outstanding balance.
- Judgment Debtor Summons
Where there is reason to believe that the guarantor, as judgment debtor, has the means to pay but wilfully refuses or neglects to do so, a judgment summons may be useful. Under sections 55 and 60 of the Sheriffs and Civil Process Act (SCPA), the court may examine the debtor on oath regarding his means and make appropriate enforcement orders. Subject to the statutory conditions, section 65(1) of the SCPA permits committal to prison for up to six weeks where the debtor has the means to pay but defaults. See also B.P.E. v. BFI Group Corp. (2025) 2 NWLR (Pt. 1976) 371 (SC). This procedure may help uncover assets or financial resources available to satisfy the judgment debt.
- Bankruptcy
Where the judgment debtor is an individual, bankruptcy proceedings may be pursued where the statutory requirements are satisfied. Under sections 1(a), 2, 3 and 4 of the Bankruptcy Act, a creditor may initiate proceedings where a judgment debt remains unpaid following service of the prescribed bankruptcy notice and the commission of an act of bankruptcy. Unlike ordinary execution, bankruptcy provides a collective process for administering the debtor’s estate for the benefit of creditors. It may therefore be relevant where ordinary execution is inadequate and the debtor has substantial liabilities.
- Sequestration
Sequestration is a specialised enforcement mechanism that may be directed against both the movable and immovable property of a judgment debtor. Unlike a Fi. Fa., it is not intended for the sale of the debtor’s property, but to place the property under the control of court-appointed commissioners until the judgment is obeyed or the court makes a further order.
Under section 82 of the Sheriffs and Civil Process Act (SCPA) and Order XI Rules 8 and 9 of the Judgment (Enforcement) Rules (JER), sequestration may be ordered where a warrant of arrest or committal has been issued against a judgment debtor who cannot be found, or where the debtor has been arrested and detained for disobeying the judgment but continues in default.
Once issued, the writ may authorise the commissioners to take control of the debtor’s immovable property and collect rents and profits towards satisfaction of the judgment debt, or to seize and retain movable property until the debtor complies with the judgment or the court makes a further order. The writ does not transfer ownership to the commissioners or authorise them to sell the property. Once the judgment debt is satisfied, the sequestration may be discharged. Sequestration may therefore provide an additional remedy where a personal guarantor owns income-producing property, particularly where ordinary enforcement has failed to realise the judgment debt.
5.0 Conclusion
The corporate veil remains an important protection under Nigerian company law, but it does not shield a person from personally assumed obligations. A director or shareholder is not liable for a company’s debts merely because the company defaults; however, a director or third-party guarantor who executes a valid personal guarantee assumes a separate contractual obligation enforceable according to its terms.
Effective recovery begins with identifying the correct judgment debtor, tracing available assets, establishing the scope of the personal obligation, and selecting the appropriate enforcement mechanism. Depending on the circumstances, this may include garnishee proceedings, writ of fieri facias, attachment and sale of immovable property, judgment summons, bankruptcy or, where appropriate, sequestration.
In the final analysis, a judgment establishes the creditor’s right; effective enforcement turns that right into recovery.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
