Legal Updates

A shareholder who undertook to pay a company debt may endorse to their account company cheques

March 24, 2018

Employees demanded that shareholders of a liquidated company be personally liable for payment of social benefits because the shareholders endorsed to their account cheques of the company to the shareholders' accounts before the full liability of the company is paid to the employees.

The Court rejected the claim and held that the shareholders acted to the benefit of the company when they financed from their private sources payment of debt accrued to the company in its bank account so that the debt will not accrue interest. The debt to the bank was backed by a fixed charge and thus had priority over the company's debt to the employees. Therefore, fraudulent intent cannot be attributed to the shareholders' action to endorse the cheques to their own account, because no personal profit was generated as a result of this action.  Moreover, even had the shareholders not endorse the cheques to their accounts, the company would not have been able to pay the debt to the employees and therefore there is no linkage between the damage caused to the employees and the cheques that were endorsed into the shareholders' accounts.