At the same time, it was clarified on the matter Anonymous, because The use of the third expansion circle in cases where there is an incorporation screen that separates the party who signed the arbitration agreement from another party that is not a signatory to it, cannot be done casually. As the court said:
"However, as a rule, the principle of separate legal personality should not be ignored and for the purpose of such disregard, the veil must be lifted in accordance with the provisions of section 6 of the Companies Law, 5759-1999 (hereinafter: the Companies Law) and the case law thereof. I will not elaborate on the conditions required for lifting the veil, but I will note that it will be done only in exceptional cases, where it is necessary to prevent the misuse of the principle of separate legal personality, for example, in order to defraud a person or deprive a creditor of the company [...]. Indeed, I accept the argument that it is sometimes justified to order a lifting of the veil when it is necessary to prevent circumvention of an arbitration agreement while taking advantage of the company's separate legal personality [...]. However, it must be remembered that an argument regarding the existence of a cause for lifting the veil requires the laying of a proper factual basis and compliance with the burden of proof required for this purpose [...]" (ibid., paragraphs 15-16; emphases added).
Thus, according to the matter Anonymous, In a situation in which it is requested to add to the arbitration proceeding a party between whom and one of the parties to the proceeding separates the corporate veil - the curtain must be raised according to Section 6 Law The Friendship, and this is on the basis of a proper factual basis.
- The rationale underlying this determination - the desire to prevent evasion of an agreement to resort to arbitration while hiding behind the veil of incorporation - is its logic, and as will be detailed below, it also corresponds with the purpose inherent in lifting the veil of incorporation. However, an in-depth examination of the provisions of section 6 of the Companies Law reveals that the possibility of using it for the purpose of adding a party to an arbitration proceeding raises a real difficulty. And I will explain.
- A company is a legal entity capable of any right, duty and action that is consistent with its character and nature as a incorporated body (Section 4 of the Companies Law). The company's independent legal personality is based on the existence of a buffer separating it from its shareholders. This buffer also derives from the corporation's limitation principle, which means that the shareholders of a limited liability company are not liable for the company's debts. This buffer between the company and its shareholders is perceived as one of the important characteristics of the company (Civil Appeal 4263/04 Kibbutz Mishmar HaEmek v. Tommy Manor, Liquidator of the Northern Chicks Ltd., IsrSC 66(1) 548, 603-604 (2008-2009) (hereinafter: the Northern Chicks case); Civil Appeal 2223/99 Crispy v. H. Electronics (1988) Ltd., IsrSC 57(5) 116, 132 (2003) (hereinafter: the Crispy case); Civil Appeal 8416/19 Adv. Shlomo Ness and CPA Eli Scheffler, liquidators of Agrexco Agricultural Production Company in Tax Appeal v. State of Israel, paragraphs 1-2 of the judgment of Judge A. Grosskopf [Nevo] (December 22, 2021) (hereinafter: Agrexco case); Yosef Gross Companies Law 220-222, 241-242 (Expanded Fifth Edition, 2016) (hereinafter: Gross); Dov Solomon: "Thin Financing - Is It Really an Independent Ground for Lifting the Veil or Deferring a Debt?" Sefer Elyakim Rubinstein 1719, 1724-1725 (2021)).
- Notwithstanding the aforesaid, the law recognizes that the recognition of the company's separate legal personality may open the door to abuse of the corporate veil, and therefore allows it to be lifted in certain cases (Agrexco, paragraph 3 of the judgment of Justice Grosskopf; Civil Appeal 184/20 Kedem v. Top Alpha Capital S.M. Ltd., paragraph 41 [Nevo] (July 11, 2022); Civil Appeal Authority 1158/04 A.M. Betterment of Assets in a Tax Appeal v. Ram Dar Construction Company in a Tax Appeal [Nevo] (June 19, 2005); High Court of Justice 132/15 R-Z Plastic inTax Appeal v. Ifraimov, para. 8 [Nevo] (April 5, 2017); Civil Appeal 4606/90 Moverman v. Tel Mer Ltd., IsrSC 46(5) 353, 362 (1992) (hereinafter: the Mberman case); Irit Habib-Segal, Corporate Law, vol. 1, 281 (2007) (hereinafter: Haviv-Segal); Amir Licht, "Lifting the Veil and Deferring Debt after Amendment 3 tothe Companies Law: What Has Changed?" Corporations B(3) 65, 72 (2005) (hereinafter: Licht)). However, the basic assumption is that the use of this tool should be done sparingly and carefully, while protecting the boundaries of the principle of separate legal personality (Civil Appeal Authority 996/17 Texas Investments in Tax Appeal v. Saprdell Entrepreneurship Ltd., para. 4 [Nevo] (August 31, 2017) (hereinafter: the Texas Investments case); Civil Appeal 3807/12 Ashdod City Center K.A. in Tax Appeal v. Shimon, para. 56 [Nevo] (January 22, 2015) (hereinafter: the Ashdod City Center case); The Ronen case, para. 15).
- Prior to the enactment of the Companies Law in 1999, the possibility of lifting the corporate veil was outlined in case law, and it was used in a variety of circumstances in which it was found that the corporate veil was misused, such as mixing assets and rights, fraudulent transfers, and using the company for fraudulent purposes and circumventing laws (Civil Appeal 10582/02 Ben Abu v. Hamdia Doors Ltd., para. 9(e)(2) [Nevo] (October 16, 2005) (hereinafter: the issue of the Doors of Hamdia); Habib-Segal, pp. 285-291). With the enactment of the Companies Law, section 6 enshrined the possibility of lifting the veil. The section was initially drafted in relatively broad language, so that it did not set out a closed list of situations justifying lifting the veil, with the intention of allowing the courts to continue to develop the rules on the matter (Explanatory Notes to the Companies Bill, 5756-1995, H.H. 2432, p. 12 (October 23, 1995); see also: The Northern Chicks Case, p. 627; Haviv-Segal, pp. 291-318). However, following criticism of the general wording of the section and the breadth of judicial discretion in its application, it was amended in 2005 to its current version, which reduces the situations in which the court may lift the corporate veil between the company and its shareholders (the Companies Law (Amendment No. 3), 5765-2005; and see: The Doors of Hamdia Case, paragraph 9(11); The Northern Chicks Case, pp. 577-578; Civil Appeal 313/08 Nashashibi v. Rinrawi, IsrSC 66(1) 398, 438-440 (2010) (hereinafter: the Nashashibi case); Civil Appeal 9147/16 Avner Cohen, in trust for the purchasers of the purchase group in Neve Yaakov v. Adv. Mordechai Kreuser, para. 17 [Nevo] (July 24, 2018) (hereinafter: the Kreuser case); Gross, p. 244).
- Section 6 of the Law in its current form therefore includes three forms of lifting the veil: a "full" lifting of the veil (section 6(a) of the Law); "inverted" or "simulated" lifting of the veil (section 6(b) of the Law); and a "partial" lifting of the veil (section 6(c) of the Law). Each of these forms is intended to deal with a different state of affairs, as detailed below:
The Shape The first, Lifting the Curtain "Full" (section 6(a) of the law), deals with attribution Debt of the company to a shareholder in it. This type of lifting of the veil effectively eliminates the separation between the company and the shareholder and ignores the limited liability of the shareholder in the company (Matter The Chicks of the North, p. 621; Interest Agrexco, paragraph 30 of my judgment; Interest Ashdod City Center, paragraphs 56-57; Interest Moverman, p. 361; Zohar Goshen and Assaf Eckstein Corporate Law 131 (2023) (hereinafter: Goshen & Eckstein)). In view of the fact that this is an extreme and far-reaching measure, the law lists a number of conditions designed to ensure that it is carried out only in appropriate cases. Thus, the provisions of section 6(a) of the law stipulate that a full lifting of the veil will be done if it is found that in the circumstances of the case it is "just and correct to do so", and only in cases Exceptions In which the use of the separate legal personality is made in a manner that is capable of defrauding a person or depriving a creditor of the company, or in a manner that harms the purpose of the company while taking an unreasonable risk as to its ability to repay its debts. In addition, in order to lift the veil, awareness is required and at least "turning a blind eye" on the part of the shareholder for such use, as well as taking into account the amount of his holdings, the fulfillment of his obligations to the company, and the company's ability to repay its debts (Matter The Chicks of the North, pp. 629-631; Interest Nashashibi, pp. 437-440; Interest Ashdod City Center, paragraph 56; Habib-Segal, pp. 318-325; Licht, pp. 83-86; Gross, pp. 246-248).