Legal Updates

Serving as a director by itself does not justify imposition of personal liability nor piercing the corporate veil

November 7, 2023
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Published in Afik News 401 29.11.2023

A company did not pay its debt to a service provider and the director was personally demanded to pay the debt.

The Court rejected the claim against the director and held that the corporate veil should not be pierced nor should the director be held personally liable for the company debt. Pursuant to the principle of separate legal entities, the liability of the company must be separated from the liability of its shareholders and the directors acting on its behalf. The incorporation veil is only pierced in exceptional cases, such as fraud or deprivation of a creditor. In some cases, it is possible to impose personal liability on a company officer when it acted in bad faith. Here, the director did not act with the intent to defraud or deprive the company creditor. The director had no involvement in the contractual agreement between the company and the service provider, he did not negotiate, he did not sign the agreement and he was not even involved in the stage after the execution, at the time when the company allegedly had to pay its debt. Therefore, the director did not act in bad faith and the mere fact of him being a director of the company does not justify piercing the corporate veil or holding him personally liable for company debts.

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