Legal Updates

A company debt cannot be attributed to a shareholder merely because he granted a private property to the company

July 2, 2021

A shareholder in a private company allowed it to manage a property owned by him and collect the rent. The company, which was run by his son, misled ceased operations and the property was sold.
The Court held, there is no ground for obligating the shareholder for the debt of the company to the lessees. Attribution a company debt to a shareholder in it will be done only in exceptional cases and the the corporate veil should not be ignored even when a shareholder is negligent in managing the company. A shareholder will not be personally liable for a company debt just because he granted the company of its capital and assets, or "smuggled assets into the company" and when the shareholder did not withdraw money from the company while oppressing its creditors. Here, the shareholder was not involved in the execution of the agreement, which was executed two years after he handed over the property to the company, or in the breach thereof nor did he benefit from it because the rent collected was transferred by his son to third parties without his involvement. Even if the shareholder was negligent in supervising his son who actually ran the company, when no funds were withdrawn by him it is not sufficient for holding him personally liable just because he gave the company the right to charge rent for his property.