ISRAEL Law and Practice Contributed by: Benjamin (Benny) Sheffer and Lance Blumenthal, S. Horowitz & Co.
selves are not always required to be filed in full, but summaries and key terms must be disclosed in tender offer reports, merger filings or related-party transac- tion notices. The ISA may request the full text where necessary for investor protection or regulatory review. Full filing is common in instances involving related- party transactions and public mergers, while con- fidentiality protections can be applied to sensitive information. The ISA may permit the redaction of com- mercially sensitive information (such as pricing formu- las or trade secrets) upon request, provided the omis- sion does not mislead investors. Sensitive appendices (like financing schedules or technical contracts) are sometimes filed in camera with the ISA. The duties of directors in Israel are mainly set out in accordance with the provisions of the Companies Law, 5759-1999, and related case law. The principal statutory duties include: • duty of loyalty – to act in good faith and for the benefit of the company, to avoid conflicts between the director’s personal interests and those of the company, and to refrain from exploiting corporate opportunities or information for personal benefit; • duty of care – to act with the level of care that a reasonable director would exercise under similar circumstances, applying both objective and sub- jective standards based on the director’s knowl- edge and experience; • duty to act within authority – to act within the pow- ers granted by law and the company’s Articles of Association; and 9. Duties of Directors 9.1 Principal Directors’ Duties • duty of disclosure – to disclose to the board or audit committee any personal interest in a trans- action and to obtain corporate approvals where required. Unlike other jurisdictions, the Israeli Companies Law expressly provides that directors owe their duties to the company, not to individual shareholders, creditors or employees. However, directors must also consider the company’s long-term interests, the fair treatment
of shareholders and the protection of minority share- holders as enshrined in Chapter 5 of the Companies Law. 9.2 Special or Ad Hoc Committees It is relatively common for boards to establish ad hoc committees when considering related-party transac- tions, mergers or control changes, particularly where conflicts of interest may arise. • For example, under Section 270 (4) and Sections 275–278 of the Companies Law, an independent committee or audit committee must review specific transactions or merger proposals involving a con- trolling shareholder who is also an interested party. • In transactions involving management participation (eg, a management buyout), the board may del- egate negotiations to a sub-committee composed of independent or external directors to ensure objectivity. In order to ensure that no conflict of interest occurs, these committees in public companies often co- ordinate with external legal and financial advisers to ensure that the board’s approval process complies with the Israel Securities Authority and Tel Aviv Stock Exchange disclosure standards. 9.3 Role of the Board In M&A transactions, the board of directors bears the primary responsibility for overseeing and approving the process. This means that, inter alia: • negotiations are usually handled by senior executives, but the board must ensure that it has received adequate information, valuation opinions, and legal advice to make an informed decision; • in public companies, the board’s resolutions and reasoning must be disclosed in the merger report or immediate report filed under the Securities Regulations (Periodic and Immediate Reports), 1970; and • where a controlling shareholder is involved, approval by a majority of minority shareholders is required under Section 275 of the Companies Law. Shareholder litigation in Israel, while not frequent, is possible through derivative actions and class actions
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