Legal Updates

Company organs – but not shareholders – may fight the initiation of insolvency proceedings against the company

January 3, 2022

A company with a sole shareholder, who also serves as the company CEO, filed an application for revocation of an order stating that the company is insolvent and appointed it a trustee.

The Supreme Court held that while a shareholder is barred from filing an appeal against an order to open insolvency proceedings, company organs are entitled to do so. There is a distinction between a shareholder and the company organs regarding their right to appeal on behalf of the company on a decision to issue an insolvency order because preventing the ability of the organs to appeal such an order on behalf of the corporation will result in no one having the actual right to do so. A decision to initiate insolvency proceedings has significant implications for both the organs of the company and the shareholders and may even expose them to claims of personal liability. While shareholders are entitled to defend themselves in the insolvency proceedings, the company organs do not have such a right, and denying them the right to appeal the order opening such proceedings therefore prevents them from appealing a decision that directly affects them. Here, the company has filed the application through its organs, with the shareholder acting in his role as CEO and therefore there is no impediment to filing the application for cancellation of insolvency proceedings.