ISRAEL Law and Practice Contributed by: Barak Platt, Micki Shapira and Moshe Pasker, Arnon, Tadmor-Levy
10. Litigation 10.1 Frequency of Litigation
may exercise its power and reject it and/or rec - ommend the company’s shareholders reject it, as applicable. 9.3 Common Defensive Measures Hostile takeover prevention mechanisms do exist in Israel, including “staggered board” and “poison pill” . However, these are mainly used in private companies due to legal restrictions on their implementation in publicly traded compa - nies on the TASE, which are only permitted to issue one class of shares. However, regarding the “staggered board” mechanism, the ISA has previously allowed companies to adopt a mechanism in which only one-third of the board can be replaced each year, for up to three years following an initial public offering. 9.4 Directors’ Duties The board must act in the company’s best inter - ests, adhering to its fiduciary duty and duty of care. Consequently, the board must provide justification for its support or opposition to the deal once it is finalised. Any refusal based on personal reasons will be deemed a breach of fiduciary duty. 9.5 Directors’ Ability to “Just Say No” Directors are subject to fiduciary duties and must act solely in the best interests of the company, while disclosing any personal interest in the pro - posed transaction. Therefore, when a director wishes to reject a particular transaction, they are generally required to provide the main reasons for their rejection.
It is relatively common for M&A-related dis - putes involving public companies to be resolved through litigation. The primary causes of these legal disputes include: • disputes over deal pricing and other fairness considerations, particularly those related to prejudice to minority shareholders’ rights; and • claims regarding defects in the transaction approval process, such as failure to obtain the necessary approvals from the required corporate bodies (especially in transactions involving a controlling shareholder and other related parties). 10.2 Stage of Deal A dispute will generally go to litigation when the company discloses information about the deal and the public is made aware of the transaction. The key time points are: • when the report about the transaction is pub - lished (mainly in public companies); or • when the definitive documents are signed (mainly in private companies). 10.3 “Broken-Deal” Disputes The COVID-19 pandemic severely disrupted the global economy and created significant uncer - tainty in the M&A landscape, leading to disputes in pending transactions. One major takeaway was the increased scrutiny of force majeure clauses, as parties sought to invoke them to escape contractual obligations. This under - scored the need for more specific and compre - hensive clauses explicitly addressing pandemics and similar crises.
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