A company sold franchises to operate food stands of an international food chain and undertook to return funds if the exclusive franchise to operate in Israel is not granted. The company did not honor its obligations and the sole shareholder was required to return the funds.
The Court accepted the claim and held that the sole shareholder must be held liable by virtue of piercing the corporate veil. The corporate veil may be pierced and the debt of a company can be attributed to its shareholder, in exceptional cases. When it is a single shareholder company controlled by a single shareholder, a small family company or a partnership-like company, the Court's approach to piercing the corporate veil will be more liberal. Here, the company contracted with potential franchisees based on a commitment that if it fails to obtain approval from the global network at the agreed time, it will return the consideration to the franchisees. The sole shareholder in the company evaded the restitution of the sums even though he was the living spirit of it and he was the one who made the decision not to accede to the financial demands of the global chain in order to obtain the franchise. In doing so, the sole shareholder made use of the separate legal entity of the company with the intention of defrauding the company's creditors and therefore, the company's debt can be attributed to him personally by virtue of piercing the corporate veil.