When he was asked in his cross-examination how on December 1, 2017, as the liquidator of the company, he signed the final report to the Registrar of Companies, where it was written that on the eve of the liquidation, the company had no obligations, all its assets were realized and all its obligations were liquidated, and that it had repaid all of its obligations, while there was still a pending debt towards the plaintiff that had not yet been decided at that time, he replied: "There was no absolute debt" (Par. of November 25, 2024, pp. 36, paras. 10-1).
Defendant 2 also testified in his cross-examination that he knew there was a claim but there was no debt: "There is a difference between a claim and a debt in my opinion" (Par. of November 25, 2024, pp. 53, paras. 8-12).
- This position of the defendants is not acceptable to me. The scope of the debts included in the declaration of insolvency also includes future debts or debts that are disputed. This can be learned both from section 34222 ofthe Companies Law, which states that when a company has made a decision on voluntary liquidation, "the trustee shall notify the creditors known to him, including creditors to whom the debt is in dispute, within 21 days from the date of the decision", and from section 352 of the Ordinance, according to which in any liquidation the company can be sued "any debt, existing or future, certain or conditional, fixed or indefinite."
While there is no dispute that at the time of signing the affidavit of solvency there is a dispute as to the existence of a debt, which will be decided in a legal proceeding that is pending at that time, it cannot be ignored merely because the previous proceeding has not yet been decided on the date of signing the affidavit or after a year has passed after the liquidation of the company, and it is not possible to accept the defendants' approach that at that time "there was no debt".
Similarly, their argument that the affidavit of solvency relates only to debts that will be consolidated within 12 months from the beginning of the liquidation, since there is no such limitation. Such a restriction is also devoid of any logic or common sense. If we accept their argument, each company will be able to extend the clarification of the debts in dispute beyond one year, and thus receive an "exemption" from paying those debts, on the grounds that they were formed after that year has passed. Therefore, the starting point is when the cause of debt was created and when the managers became aware of its existence. Without derogating from this, in any case the judgment in the previous proceeding did not create the debt, it only confirmed its existence, so that the debt was created before the 12 months had passed from the beginning of the liquidation.
- The directors' declaration, according to which the company is able to repay all of its debts, obligates the directors to conduct a thorough and comprehensive examination of the company's debts and creates a representation to the company's creditors that there will be no balance of the company's debt at the end of the voluntary liquidation process. Were it not for this representation, which is made by means of a declaration of solvency, the liquidation proceeding would be conducted with the involvement of the creditors and the official receiver and under the supervision of the court.
- The purpose of the declaration of solvency, therefore, is to create collateral in the hands of the creditors, which they can rely on in order to secure the repayment of the debt to them. Thus, if it becomes clear that the directors' declaration was given in bad faith or was given out of negligence, it will be possible to hold them personally liable.
In this regard, see the judgment of the Honorable Vice President Ramzi Hadid inCivil Appeal (Haifa) 53964-04-15 Miriam Angel v. Rachel Yishai (June 20, 2018) (published in Nevo), paragraph 22 of the judgment, which was approved by the Haifa District Court (the Honorable Judge G. Ginat) inCA 31039-09-18 Yishai v. Angel (published in Nevo) (April 22, 2019) (hereinafter: "the Angel case"), where it was stated as follows (paragraphs 39-41 of the judgment):