Legal Updates

One who purchases services in the name of a company knowing that the company cannot pay for such may be held personally liable for its debt

May 15, 2025
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The sole shareholder and director of a company ordered flight tickets in the name of the company despite knowing that the company was in financial distress and would be unable to pay its debts.

The Court held that the shareholder was liable for the company debt. Generally, a company is a separate legal entity from its shareholders and shareholders are not personally liable for the company obligations. However, the corporate veil may be pierced, and a shareholder may be held personally liable, such as when the shareholder abuses the company's separate legal personality to defraud creditors, takes unreasonable risks regarding its ability to meet its obligations or mixes the personal and corporate. Here, the shareholder who was also the sole director continued to purchase flight tickets for the company while knowing that the company will not be able to meet its commitments. Therefore, he is personally liable for the company debt.

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