Legal Updates

Sale of a shareholder’s private asset for covering company debts shall not be deemed a cause for piercing the corporate veil

May 5, 2024

A company owed money to service providers. The controlling shareholder of the company concealed from its creditors the fact that it was in cash flow difficulties, that it had lost its franchise and that it was facing insolvency proceedings. In addition, the controlling shareholder sold one of his assets to cover company debts.

The Court held that the controlling shareholder is personally liable for the company debts. A company debt can be attributed to its shareholder, if he misused the company's separate legal personality, such as for the purpose of defrauding or depriving a creditor of the company. An indication of such misconduct may be a continuing mixing between the shareholder's private assets and the company's assets. Here, the fact that the shareholder sold a single asset does not constitute grounds for his personal liability, but the fact that he misled the company creditors regarding its financial condition does constitute grounds for his personal liability.