Client updates /  Insolvency

A district court in Israel has ruled to impose personal liability on a company’s CEO and director for the company’s accumulated debt to the Registrar of Companies in respect of annual fees, after the company ceased operating, because the CEO and director refrained from opening court proceedings to liquidate the company.

The Israeli Supreme Court has ruled that legal advice given to directors who are members of an audit committee or an independent committee is not protected by attorney-client privilege and that the company (and the trustee who is subrogating for the company) own the legal advice. Consequently, a trustee appointed after a company collapses may receive documents and correspondence exchanged between directors and the company’s attorneys.

Chapter 8 of the new Insolvency and Economic Rehabilitation Law addresses the liability of officers and functionaries. The law’s main innovation is that – beyond liabilities toward the corporation, which already existed prior to the enactment of the law, such as fiduciary duty and duty of care – special liability will also be imposed on the corporation’s officers and functionaries.