Legal Updates

Company directors who are not shareholders can not be held liable for company debts to its employees by way of piercing the corporate veil

August 21, 2022

Ramallah based employees of an American start-up company that was liquidated in the United States of America sought to obligate two Israeli directors of the company, who managed a venture capital fund that was one of the company shareholders and were thus appointed directors, to personally pay social benefits due to them.

The Labor Court held that the directors are not personally liable to the employees. In exceptional cases, it is possible to attribute a company debt to its shareholder, including debt to the company employees, by piercing the corporate veil and in special circumstances it is possible to do so even if the controlling owner is not registered as such, if such controlling shareholder is the “live spirit” behind the company. However, it is not possible to pierce the veil against directors merely due to their role as such. Here, the people served as directors in their capacity as representatives of the company they managed and were not officers or managers of the company itself and had no control over it. In addition, they did not serve as their employers and were not the shareholders of the company which employed the employees and therefore the corporate veil cannot be pierced in order deem them personally liable toward the employers.