Legal Updates

Non-payment of city taxes by a company personally obligate its controlling shareholder

May 4, 2020

A holding company that held a number of properties in Tel Aviv went into liquidation and was unable to pay the municipality its debt for city taxes. The municipality sought to hold the controlling shareholder liable for the payment of the company's debt.
The Court held that the shareholder of the company is personally liable for the city debts of the company. Failure to pay city taxes by a company may hold its controlling shareholder personally liable, when a local authority encounters difficulties in collecting the debt. The law empowers authorities to collect city tax debt in case a company went into liquidation or terminated its operations without settling its debt, if the following accumulative conditions are met: The property was nto used for residence, the company is a private one and does not fall under the legal status of a 'protected tenant', and the debt is not contested. A controlling shareholder who wishes to avoid such liability must demonstrate that the assets of the company were not transferred to him or that he paid full consideration for such and that all the assets of the company were used to pay its debts. Here, the controlling shareholder holds all its shares and did not demonstrate that all the assets of the company were used to pay its debts and was thus held personally liable for the company’s city tax debts.