Legal Updates

A controlling shareholder of a company which ceased operations may be charged with its city tax debts

August 9, 2021
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The Jerusalem Municipality sought to obligate the controlling shareholder of Globus Group with the city tax debt of the company because the company ceased operations one year prior to the crystallization of the debt.

The Court accepted the motion and held that the controlling shareholder should be charged with the company city tax debt. Piercing the corporate veil is an exception to the principle of the company separate personality, under which exception a shareholder may be liable for the company debts. The corporate veil may be pierced for the purpose of collection of city tax debts of inactive or liquidated companies in order to prevent their owners from evading payment by smuggling assets. However, because this is an extreme measure that violate the right to property, six cumulative conditions are to be met: The charge regards a property which is not used for residence; The city tax debt is final; The company did not pay the debt; The company ceased its operations after the debt crystallized; The company owned assets at the time of liquidation or cessation of operations and the company's assets were transferred to the shareholders at the time of liquidation or cessation of operations at a reduced consideration or for free. Here, all six conditions were met, especially as the company ceased operations one year prior to the crystallization of the debt. Thus, the controlling shareholder is liable for the company city tax debt.