ISRAEL Law and Practice Contributed by: Barak Platt, Micki Shapira, Liron Hacohen and Nataly Margalit, Arnon, Tadmor-Levy
Additionally, the ISA has the authority to require dis - closure of certain documents in full, in special ad hoc cases where the ISA deems this to be necessary for proper disclosure to the public. It is worth noting that, despite this, in cases where extensive or sensitive disclosure is required, such as in a transaction with a controlling shareholder, some companies voluntarily elect to disclose full copies of certain transaction documents, such as the purchase agreement. Under Israeli law, directors are subject to a general duty of care and a duty of loyalty towards the compa - ny, including in the context of approving M&A transac - tions. As part of these duties, the board must exercise independent judgement, acting solely in the best inter - ests of the company (and not, for example, in favour of a particular shareholder), by thoroughly assessing the prospective transaction, including considering terms, risks, effects and alternatives. In the context of a special tender offer, the board of directors of the target company is required to provide its opinion regarding the fairness of the offer to the offerees (and if it is unable to do so, it must specify the reasons). The board must also disclose in advance any personal interest that any of its directors may have in the tender offer or in connection therewith. 8. Duties of Directors 8.1 Principal Directors’ Duties A director of the target company who acts with the intention of thwarting the tender offer may be held lia - ble for damages to the bidder and the offerees, unless the director acted in good faith and had reasonable grounds to believe that their actions were in the best interests of the company. 8.2 Special or Ad Hoc Committees Although not legally required, in recent years, there has been growing use of independent special or ad hoc committees in Israel to negotiate significant transactions involving controlling shareholders. Their purpose is to ensure a fair, market-like process that
secures the best terms for the company, simulating an arm’s-length negotiation with an unrelated party. The use of independent special committees for approving transactions with controlling shareholders (mainly in “going-private” transactions) has increased, following several court rulings which established that if a company appoints an independent committee that conducts effective and unbiased negotiations, the business judgement rule will generally apply in judicial review of the transaction. This serves to limit the scope and standard of scrutiny over the trans - action approval process (see 3.1 Significant Court Decisions or Legal Developments and 8.3 Business Judgement Rule ). The common practice is that such an independent special committee will consist solely of external and independent directors, who have no conflicts of inter - est or ties to the controlling shareholder or the trans - action. 8.3 Business Judgement Rule The Supreme Court of Israel has embraced the busi - ness judgement rule with respect to judicial review of board decisions. According to this rule, decisions made by the board are presumed valid and protected from judicial review, provided that the decision was made without conflict of interest, in good faith and based on all relevant information. This rule generally applies to board decisions regard - ing M&As, as well as transactions with controlling shareholders, provided that an independent special committee is established, as mentioned in 8.2 Special or Ad Hoc Committees . 8.4 Independent Outside Advice As a general practice, the company’s legal counsel, whether external or in-house, advises the directors on various corporate governance matters, including regarding business combination issues. It should be noted that, under Israeli law, a director has the right to appoint independent professional advisers (including legal counsel), at the company’s expense, in “spe - cial cases” where they deem it necessary, subject to board or court approval. This right is rarely exercised.
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