A supplier of a company demanded that a shareholder of a company, who was also in practice its CFO, be required to personally pay the company debts for goods supplied, after presenting him with presentations that the company cash flow difficulties were easy and not a real financial hardship with an apprehension of non-payment and he continued to issue checks and sign them The Court attributed the company debt to the shareholder personally as he managed the company with thin capitalization and hid its true financial situation from the company creditor. A personal liability of a company shareholder will be imposed in exceptional cases where the special conditions for piercing the corporate veil are met. Managing a company in a state of thin capitalization, which occurs when the company equity or asset inventory is not sufficient to cover the company liabilities, is a prohibited use of the incorporation veil because the shareholder 'enjoys' the company profit prospects, but does not share the risks of loss - which are rolled over to the shoulders of the external creditors. Additionally, an organ of a company is not exempt of personal liability if acted in an undue manner towards third parties. In this case, the shareholder knew that the company debts exceeded the value of its assets but despite this the company continued, with his knowledge, to order goods and issue future checks without cover. In addition, his role in the management of the company included personally signing company checks, and accordingly reviewing its financial conduct, therefore he had a duty of care towards the supplier as part of the general duty of care of a CFO in a company vis-à-vis its creditors who rely on his representations. Therefore, the shareholder is personally liable for the company debts.
Published in Afik News 375 30.11.2022
Related articles
Familial proximity does not by itself rule out the existence of an employment relationship
Labor Law
Dispute Resolution
A lawyer was employed as a salaried employee in a law firm owned by her husband and the National Insurance Institute refused to pay maternity pay contending that she worked as an independent contractor, inter alia, because her salary as an employee significantly exceeded her husband’s profits, no employment contract was signed and no replacement […]
The existence of defamation is determined by the message conveyed to the viewer, not by the publisher’s intent
Privacy, GDPR, Confidentiality and protection of reputation
Intellectual Property, Copyrights, Trademarks, Media and Artists
Dispute Resolution
Following a radio interview on channel 103, in which Yossi Langotsky, the father of the deep-water gas field discoveries in the Mediterranean Sea, warned against deteriorating into civil war amidst the public debate, Channel 14 personality Yaakov Bardugo delivered a monologue that same evening accusing Langotsky of threatening violence, calling for his arrest, and referring […]
A Claim That a Contract Clause is Merely a Sham Requires a High Standard of Proof
Commercial, Banking and Financial
Dispute Resolution
An agreement for the provision of furniture transport and assembly services existed between two companies, which either party was entitled to terminate with 60 days’ notice. After several years, the transport company requested to replace the agreement with an engagement with a sister company but because the sister company required this in order to finance […]
Cancellation of general meeting resolutions due to a defect in the summons does not demand restoring the situation to its previous state in the company
Business, Corporate and Joint Ventures
Dispute Resolution
Following the passing of the controlling shareholder in a family company, two-thirds of his shares passed to his heirs, while his partner, holding one-third of the shares, remained the sole director of the company. When a dispute arose between the parties regarding the arrangement of the management structure in the company, the heirs, who had […]