Legal Updates

Giving a false statement in an expedited procedure for voluntary liquidation regarding the absence of debts of the company is grounds for piercing the corporate veil

March 26, 2024

A company ordered a video production service but did not pay for it. The shareholder was demanded to pay the debt personally after it became clear that he filed a motion to liquidate the company in an expedited process of where he declared that the company has no debts, knowingly this is not the case.

The Court accepted the claim and the shareholder was ordered to personally pay the company debt. Pursuant to the principle of separate legal personality, the liability of the company and its shareholders and directors acting on its behalf are separate. The incorporation veil is pierced only in exceptional cases, such as creditor fraud or deprivation. An expedited procedure for companies liquidating is intended for companies that have no activity at the time of the decision to liquidate, and is conditioned, inter alia, on providing an affidavit of the directors, according to which, inter alia, the company has no debts. Here, the shareholder (who is also a director) initiated, on behalf of the company, a voluntary liquidation procedure, even though he knew that there was a pending payment demand from the service provider. Therefore, his statement that the company has no pending debts is a false statement. Under these circumstances, there is justification to pierce the corporate veil and to hold the shareholder personally liable for the company debt.