ISRAEL Law and Practice Contributed by: Barak Platt, Micki Shapira, Liron Hacohen and Nataly Margalit, Arnon, Tadmor-Levy
3.2 Significant Changes to Takeover Law Proposed Amendment No 37 to the Israeli Companies Law will introduce significant changes to corporate governance, particularly in public companies without a controlling shareholder, which may affect takeover matters. Key changes include, inter alia: • setting a rebuttable presumption of control for shareholders holding 25% (if no one holds 50%); • replacing the requirement for two external directors with a majority of independent directors; • limiting director terms in public companies to three years, with most of the board expected to change within two years. The Proposed Amendment may limit the ability of companies to adopt takeover protections such as the “staggered board” mecha - nism; and • requiring an audit committee and board approval for major transactions with shareholders holding 10% or more. Significant Change to Contracts Law On 7 January 2026, Amendment No 3 to the Contracts Law (General Part)- 1973, was published. This amend - ment has significant implications for the interpretation of contracts in Israel and will apply, inter alia, to merg - er agreements and share/asset purchase agreements. The purpose of the amendment is to promote cer - tainty by reducing judicial discretion in contract inter - pretation and by prioritising the parties’ intent and the contractual language. This amendment establishes a default rule whereby a contract shall be interpreted in accordance with the parties’ agreed terms. That is, the contract will be interpreted based on its wording, and the only evidence admissible for its interpreta - tion will be the documents attached to the contract as an integral part thereof (for example, exhibits to the agreement). The use of prior drafts as evidence for the interpretation of the agreement will no longer be permitted. Only where the parties have not expressly agreed on how the contract should be interpreted does the amendment provide that, in the case of a commercial contract such as a merger agreement or a purchase
Although substantial oversight powers over national security considerations in foreign investments are included in existing legislation, the Advisory Com - mittee has authority to review transactions that are not subject to FDI regulatory requirements. While the Advisory Committee published a general methodol - ogy and guidelines in August 2024, as of now, the transactions that it has reviewed and its recommenda - tions have not been made public. For additional national security-related restrictions, see 2.3 Restrictions on Foreign Investments . 3. Recent Legal Developments 3.1 Significant Court Decisions or Legal Developments Class Action: Nestlé-Osem Merger Deal (December 2021) This was a class action lawsuit in which unfair pric - ing was alleged regarding a “going-private” merger between Osem and its controlling shareholder, Nestlé. The allegation was based on conflicts of interest and procedural flaws in the work of the independent board committee appointed by Osem to oversee the merger. The Supreme Court of Israel ruled that, when negotia - tions for a transaction with a controlling shareholder are conducted independently through a special com - mittee (which will consist solely of external and inde - pendent directors), and the transaction is approved by the audit committee, the board of directors, and the general meeting by a special majority that excludes interested parties, a rebuttable presumption of fair - ness arises, indicating that the transaction is fair (ie, the business judgement rule). However, if it is found that significant flaws exist in the work of the independent committee, the court may exercise judicial review. This ruling strengthens the protection of the special independent committee’s work and the incentives for its establishment, while raising the threshold required to demonstrate flaws in its conduct.
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