Corporate And Business Lawyers
Officers' responsibilities
It is a fundamental principle of corporate law that actions taken by officers are actions taken by the corporation as a whole. Since the corporation is the one responsible for the act of the officer, the corporation is the one who bears legal responsibility. Does this rule always apply or are there exceptions? In this article, we will discuss this issue.
מאת עו״ד ונוטריון יגאל מור
דיוק בייעוץ המשפטי. מצויינות בליווי המשפטי.
Fiduciary duty ensures that a director does not abuse his power for his own benefit. Duty of care ensures that no harm is caused to the company ... therefore, even if a director does not cause damage to the company, he has violated his fiduciary duty..."
The Honorable President at that time, Judge A. Buchbinder et al. v. the official receiver in his capacity as liquidator of Bank of North America, BA 610/94
The theory of the organs
Companies Law section 47 provides that the actions of the company’s organs constitute the actions of the company as a whole. A company’s officers, such as its CEO, belong to this group of corporate bodies, which also includes the general assembly, the board of directors, and anyone who, by law, or by virtue of the company’s bylaws, considers his action on a certain matter to be the company’s action. Although it seems logical and fair since the office bearers act on behalf of and for the company, it is important to note that this rule does not provide immunity from personal liability in any situation. There are situations in which the official will bear personal, contractual and/or tort liability even if he acted within the scope of his duties.
Therefore, it is not relevant in situations where a person has difficulty making decisions and performing actions, but he is competent enough to do so. For this purpose, in 2015, Amendment 18 to the Legal Training and Guardianship Law was created, under which a person can submit an application to the court requesting to appoint a decision supporter. This is a person whose role is to assist the supported person in the decision-making process and their implementation, but he does not replace his judgment with that of the supported person and the latter retains full control over his life.
Liability under a contract
Generally, when a company enters into a contract and breaches it, a contractual cause of action arises against the company, rather than against the officer. It is true that, in practice, he is the one who signs the contract, but he does so on behalf of the company. In some circumstances, however, the office bearer may be held personally liable and the injured party may file a claim against him in addition to his claim against the corporation. An example of this would be the case if it can be proven that the breach of contract was caused by the official’s act or omission, for example, when the official deceived or lied to conclude the contract, acted in bad faith, etc.
A court's approach
Therefore, we consider that, under certain circumstances, an office bearer may have contractual legal responsibility, even though the contract was drafted on his behalf and for the benefit of the company. As a result, the third party will have an independent right to sue the official. The present situation is an exception to the theory of the organs, which considers the actions of the company’s organ as being the actions of the company itself. Thus, the courts’ approach in this instance is narrowing and strict, requiring caution before imposing personal contractual liability on an office holder. Otherwise, the principle of the separate legal personality of the corporation will be void.
A precautionary measure
In order to reduce the risk that they will be charged with contractual responsibility as discussed above, office holders should exercise extra caution when dealing with third parties. As an example, not to make any unplanned statements on behalf of the corporation, which could be interpreted as a personal commitment and impose responsibility on the office bearer. As a result, any commitment made on behalf of the corporation should be precise and should be in writing only, so that there are no misunderstandings or ambiguities. Clearly, the line described above can be very thin, and as a result it is essential that office bearers receive ongoing legal guidance to minimize to a minimum the risk and exposure to personal liability.
Legal liability for torts
As with contractual liability, as a general rule, the actions of an office bearer constitute the actions of the corporation. An office holder is not immune from tortious personal liability if he has personally committed a tort such as negligence. Tort liability is imposed on office holders in order to deter them from being negligent in the performance of their duties and to establish an ethical and moral management standard. To establish tortious liability against a corporation official, it must be demonstrated that he was responsible for the wrongdoing that resulted in the damage for which the lawsuit was filed. According to the courts, when it comes to this issue, things must be carefully considered before imposing personal tortious liability on an office holder, both due to the separate legal personality of the company and in order to avoid excessive deterrence.
