Legal Updates

A former shareholder may continue to be deemed a guarantor of company debts if failed to notify of the guarantee cancellation

December 10, 2020

A creditor of a company demanded payment of company debts by a former shareholder, who was a guarantor on a promissory note to the company debts in respect of check clearing transactions, even though his shares were transferred to another before the claim was filed.
The Court held that even though the guarantor ceased to be a shareholder, he is still a guarantor because he failed to notify the guarantee holder that the guarantee is cancelled. Israeli law stipulates that the relevant date for the materialization of the guarantee is the date of execution thereof. Therefore, one who seeks to revoke the guarantee has a duty to notify the guarantee holder in writing. Here, the guarantor failed to notify upon the transfer of his shares. Thus, the guarantor is liable under the promissory note, despite the fact that he is no longer a shareholder in the company.