Personal liability of officers: when a director or manager is liable personally
A company is a separate legal person, and the acts of its managers are its acts. That is the rule, and it holds in most cases. But the Companies Law says expressly that attributing an act to the company does not detract from the personal liability of the person who acted. This page explains when the line is crossed: towards the company itself, towards those who dealt with it, and when the company reaches insolvency.
“The separate legal personality protects the company. It does not protect the person who did the act himself.”
Adv. Erez Sapir
Who is an officer, and why their acts are the company's acts
The Companies Law defines an office holder by a list: chief executive officer, chief business manager, deputy chief executive, vice chief executive, anyone performing such a role even under a different title, and any director or manager reporting directly to the chief executive. The title does not decide; the role in practice does.
The general meeting, the board of directors and the chief executive are the organs of the company, together with anyone whose act is treated as the company's act by law or under the articles. The Law provides that the acts and intentions of an organ are the acts and intentions of the company. This is the organ theory.
Hence the everyday rule: when a CEO signs a contract, the company is the party; when a board decides, the company has decided. A party harmed by a breach sues the company. The question on this page is when it can sue the individual as well.
Section 1 (definition of "office holder"), sections 46 and 47 of the Companies Law, 5759-1999. Checked September 2026.
The section that opens the door: attribution does not remove personal liability
The organ theory does not confer immunity. Section 54 of the Companies Law provides that attributing an act or an intention of an organ to the company does not detract from the personal liability that the individuals making up the organ would have borne but for that attribution.
The meaning is simple: attribution to the company adds a defendant, it does not replace one. If the act itself, setting the company aside, would have created personal liability under contract law or tort law, that liability remains. The company is liable alongside, not instead.
That is why the analysis in every case starts with the individual and not with the company. The question is what the officer personally did, knew, said or promised, and whether that same act, had a private individual done it, would have bound that person.
Section 54(a) of the Companies Law. Subsection (b) was repealed. Checked September 2026.
The duties owed to the company itself: care and loyalty
An officer owes the company two central duties. The duty of care refers to the law of negligence in the Civil Wrongs Ordinance, and requires acting with the level of skill that a reasonable officer in the same position and circumstances would show, including taking reasonable steps to obtain information on the business merits of an action brought for approval.
The duty of loyalty requires acting in good faith and for the benefit of the company. The Law lists four prohibitions: a conflict between the role and a personal interest or another role, competing with the company's business, exploiting a business opportunity of the company, and failing to disclose information or documents concerning its affairs.
The difference between the two matters for remedies. A breach of the duty of loyalty is governed by the law of breach of contract, and the company may even cancel an act towards a third party who knew of the breach. An act involving a conflict of interest can be approved in advance, but only with full disclosure and without harm to the company.
Sections 252, 253, 254, 255 and 256 of the Companies Law. Checked September 2026.
Personal contractual liability towards those who dealt with the company
When a company breaches a contract, the cause of action lies against it. The officer who signed did so in its name and is not a party to the contract. The case law has repeated that a person's being an organ of the company is not enough to bind that person personally, and an additional element creating liability of their own is required.
That additional element usually comes from contract law itself. Lack of good faith in negotiation is a personal duty of whoever conducted the negotiation, and the Supreme Court has recognised that an officer may bear it even when contracting on behalf of a company. Misrepresentation, concealment, or a promise the officer knew the company could not keep are the recognised cases.
The courts take a restrictive approach here. Imposing personal liability lightly would empty the separate legal personality of content. The burden is therefore on the claimant to point to a personal act or omission, and not to the business failure as such.
Section 12 of the Contracts (General Part) Law, 5733-1973; CA 4612/95 Matityahu v. Shtil; CA 10362/03 A. Barzani Services and Transactions Ltd v. Ahim Ben Rahamim (North) Ltd. A description of the holdings, not a quotation. Checked September 2026.
Personal liability in tort: the person who committed the wrong
In tort the rule is clearer. A company is directly liable for a wrong committed by its organ, but the organ who personally committed the wrong is not exempt. Since the Tzuk Or case the rule has been that an officer whose personal acts satisfy the elements of a tort bears personal liability, alongside the company.
The condition is personal commission. It is not enough that the company committed a wrong and that the officer headed it. It must be shown that the officer personally was negligent, misled, or caused the damage, that is, that the elements of the tort are met in that person. Negligence is judged by the standard of a reasonable person in that role.
The logic is twofold. On one side, deterrence: whoever holds a key position must know that the corporate veil does not hide a wrong they committed. On the other, caution: liability that is too broad would deter good people from serving. The courts balance the two in every case.
Sections 53 and 54 of the Companies Law; CA 407/89 Tzuk Or Ltd v. Car Security Ltd. A description of the holding, not a quotation. Checked September 2026.
When the company is insolvent: the duty to reduce the damage
The Insolvency and Economic Rehabilitation Law added a dedicated cause of action. A director or chief executive who knew, or should have known, that the corporation was insolvent and did not take reasonable steps to reduce its extent may be liable towards the corporation for the damage caused to the creditors by that omission.
The application is made to the court by the trustee or the Commissioner, after the order opening proceedings. The Law offers a clear route out: an officer is presumed to have taken reasonable steps if they assessed the corporation's financial position and acted so that it would take one of three: assistance from professionals specialising in corporate rehabilitation, negotiation with the creditors towards a debt arrangement, or opening insolvency proceedings.
This is a change of approach. In the past the question was whether the manager caused the insolvency; today the question is what the manager did once aware of it. Continuing as usual, without assessment and without action, is the risk.
Section 288(a) and (b) of the Insolvency and Economic Rehabilitation Law, 5778-2018. Checked September 2026.
Not piercing the corporate veil: two different routes
Officers' liability is sometimes confused with piercing the corporate veil, and they are two different things. Piercing the veil, under section 6 of the Companies Law, attributes a debt of the company to a shareholder, in exceptional cases where the separate legal personality was used to defraud or to prejudice a creditor, or while taking an unreasonable risk with the company's ability to pay.
Officers' liability does not attribute the company's debt to the officer. It imposes liability for the officer's own act: breach of a duty to the company, lack of good faith towards a third party, a wrong committed, or an omission in insolvency. The source is different, the defendant is different, and the remedy is different.
The distinction is practical. A shareholder who is not a manager is exposed mainly to veil piercing; a manager who is not a shareholder is exposed mainly to personal liability; and a person who is both may be sued under both routes together, and the claim must distinguish between them.
Section 6(a) of the Companies Law. See also the "Piercing the corporate veil" page in this department. Checked September 2026.
Exemption, indemnity and insurance: what can be arranged in advance, and what cannot
The Law allows a company to protect its officers with three tools, all conditional on a provision in the articles. An advance exemption is possible only from liability for breach of the duty of care, and not for a director in relation to a distribution. Indemnity is possible for a financial liability imposed in favour of another person by judgment, including in a settlement or arbitration, and for reasonable litigation expenses.
Liability insurance is possible for breach of the duty of care towards the company or another person, for a financial liability in favour of another person, and even for breach of the duty of loyalty, provided the officer acted in good faith and had reasonable grounds to assume the act would not harm the company.
There are limits that cannot be crossed. No exemption, indemnity or insurance is valid for a breach of the duty of loyalty other than in good faith, for a breach of the duty of care committed intentionally or recklessly, for an act intended to derive an unlawful personal gain, or for a fine, civil fine, financial sanction or forfeit. And under the Insolvency Law, not for the liability to reduce the extent of insolvency either.
Sections 258, 259, 260, 261 and 263 of the Companies Law; section 288(c) of the Insolvency and Economic Rehabilitation Law. Checked September 2026.
In summary
In summary, the company's separate legal personality is the starting point, not the end of the road. An officer owes the company care and loyalty; towards third parties the officer is exposed when their own acts, not the company's, create a cause of action; and in insolvency the officer is exposed when they knew and did not act. Exemption, indemnity and insurance reduce the exposure, but not all of it.
Handling such a case, from any side, requires separating what the company did from what the individual did, reading the articles and the insurance policy before framing an argument, and knowing when veil piercing is the right route and when personal liability is.
Contact us to review your exposure as an officer, or that of an officer you are facing, and to learn about the options available to you.
Frequently asked questions about officers' liability
I am a salaried CEO with no shares. Can I be sued personally?
I signed a contract on behalf of the company and it did not pay. Am I liable?
What is the difference between piercing the veil and officers' liability?
Can the company exempt me in advance from all liability?
What should be done when it becomes clear the company cannot pay its debts?
Does directors' and officers' insurance cover breach of the duty of loyalty?
Does a director with accounting expertise bear heightened liability?
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