Legal Updates

A shareholder who did not receive any company’s assets and did not act ‎with intent to deceive will not be held accountable for company’s city tax ‎debt

October 25, 2016

A municipality filed a lawsuit against a shareholder of a company claiming that the shareholder is to be personally liable for the city tax debts of the company.

The Court held that a company’s property tax debt may be attributed to a shareholder by piercing the corporate veil under the Companies Act or under the Arrangements Law subject to a number of pre-conditions as follows: a. The debt is in respect of a non-residential property; b. The city tax debt is final; c. The company has not paid the debt; d. The company ceased operations; e. The defendant is indeed a controlling shareholder; and f. The defendant took over the assets of the Company for no consideration or for a partial consideration.  In the present case, the company ran into real financial difficulties and ceased operation after several months. The municipality failed to prove that the shareholder acted with the intention to defraud creditors and therefore the Court rejected the argument for piercing the veil pursuant to the Companies Law. Moreover, it was proven that the shareholder did not receive any of the company’s assets and therefore the Court rejected the demand to pierce the corporate veil under the Arrangements Law.  Thus, the Court rejected the claim against the shareholder.