Legal Updates

An active manager in a company that entered liquidation may be personally liable for all its debts

January 10, 2019

A liquidator of a food marketing company demanded that a manager and shareholder in the company pay the company over ILS 11 million, which he claimed to have been withdrawn for a transaction entered into to save the company and before the company collapsed.

The Court held that the manager is responsible for all the debts of the company and is also obligated to repay about ILS 9.5 million.  When a company enters liquidation proceedings and it becomes clear that the company acted fraudulently, even if the fraud did not cause the company to collapse, officers of the company who knowingly participated in the management of the business may be personally liable to pay third parties debts of the company and obligated to repay funds to the company. The definition of the term "fraud" is very broad and includes not only the diverting of assets, but also any situation in which an officer acted to promote his personal interest, including the repayment of the debts of the company for which the officer is a guarantor for the purpose of releasing him from his debt at the expense of the other creditors; preference of creditors in which the officer has a personal interest, and transfer of company assets (prior to the commencement of liquidation proceedings, when the company owes creditors money) to another company controlled by the officer without consideration or for partial consideration. Here the manager made withdrawals from the company’s account to a new account he opened and from which he then withdrew money in cash and the conduct therefore causes him to personally owe the company's debts and return money to it.