Companies Law, 5759-1999

A company that has received a demand may act in one of the following ways:

The company shall notify the plaintiff of the course of action it has taken as referred to in section 195 within forty-five days from the date of receipt of the demand, providing particulars of the action taken and the body that resolved upon it, including the names of the participants in the adoption of the resolution; if a participant or an office holder in the company had a personal interest in the resolution, this shall be noted in the resolution and in the notice to the plaintiff.

A plaintiff may file a derivative action with the approval of the court pursuant to the provisions of section 198, if one of the following conditions is satisfied:

Where the court has given judgment in a derivative action and has awarded costs in favour of the defendant, the company shall pay the costs so awarded, unless the court has determined, for special reasons that shall be recorded, that the costs shall be paid by the plaintiff; the court may impose on the company payment of the plaintiff's costs, and may also impose on the plaintiff payment of costs incurred by the company, in whole or in part, having regard to the judgment and to the other circumstances of the matter.

Where the court has given judgment in favour of the company, it may direct payment of remuneration to the plaintiff who took the trouble of filing the derivative action and proving it.

A creditor of a company may file a derivative action on behalf of the company in respect of a prohibited distribution carried out in the company, and a creditor who is a bondholder in a bond company may also file a derivative action on behalf of the company in respect of non-compliance with the provisions of section 275(c) and (d), and the provisions of this Section shall apply, with the necessary modifications.

No derivative action or derivative defence shall be filed on behalf of a company for which a trustee has been appointed pursuant to Chapter B of Part Eight A or pursuant to the Insolvency and Economic Rehabilitation Law.

The Minister may prescribe provisions concerning a derivative action and a derivative defence, including provisions concerning the procedures for their approval, the rate of the court fee and the times and methods for its collection.

The first directors of a company are the directors appointed by the founders who have given a declaration as referred to in section 8; the tenure of the first directors shall end at the conclusion of the first annual meeting, unless otherwise prescribed in the articles of association.

The tenure of a director shall commence on the date of that director's appointment or on a later date, if the articles of association contain a provision permitting an appointment with a future commencement date.

The tenure of directors appointed by a general meeting shall end at the conclusion of the annual meeting first held after the date of appointment, unless otherwise prescribed in the articles of association.

A company that is not a reporting corporation shall report to the Registrar of Companies on the appointment of a director and on the termination of the tenure of a director, within fourteen days from the day on which the director was appointed or from the day on which the director's tenure ended.

A company shall maintain at its registered office a register of the members of the board of directors and of their alternates, if alternates have been prescribed for them pursuant to the provisions of section 237, which shall be open for inspection by any person.

A person who does not possess the requisite qualifications and the ability to devote the appropriate time to performing the role of a director in the company, having regard, inter alia, to the company's special needs and its size, shall not be appointed as a director in a public company or in a private company that is a bond company, and shall not serve as a director in such a company.

"enforcement measure" means an enforcement measure as referred to in section 52bd of the Securities Law, imposed pursuant to Chapter H'4 of the Securities Law, pursuant to Chapter G'2 of the Regulation of Investment Advice and Investment Portfolio Management Law, 5755-1995, or pursuant to Chapter Y'1 of the Joint Investment Trust Law, 5754-1994, as the case may be;

"Administrative Enforcement Committee" means the committee appointed pursuant to section 52af(a) of the Securities Law;

"judgment" means a judgment of a court of first instance.

Where the Administrative Enforcement Committee has imposed on a person an enforcement measure prohibiting that person from serving as a director in a public company or in a private company that is a bond company, that person shall not be appointed as a director in a company in which that person is prohibited from serving as a director pursuant to that decision.

A director who has ceased to satisfy a condition required under this Law for serving as a director, or in respect of whom a ground for the lapse of tenure as a director has arisen, shall immediately notify the company thereof, and that person's tenure shall lapse upon the giving of the notification.

Where the company becomes aware that a director was appointed in contravention of the provisions of sections 226, 226a or 227(a), or that a director has breached the provisions of sections 225, 227(b) or 232, the board of directors shall, at the board of directors meeting first convened after it becomes aware thereof, decide on the termination of tenure of that director, if it finds that the said conditions have been satisfied, and the tenure shall lapse from the date of the decision.

Where a director has been convicted by judgment of an offence as provided in section 226(a)(1) or (a1), that person shall notify the company thereof and that person's tenure shall lapse upon the giving of the notification, and in a public company and in a private company that is a bond company, that person may not be reappointed to the office of director unless the period during which that person is prohibited from serving as a director pursuant to section 226 has elapsed.

Where the Administrative Enforcement Committee has decided to impose on a person enforcement measures prohibiting that person from serving as a director in any public company, in any private company that is a bond company or in the company in which that person serves, that person shall notify the company thereof and that person's tenure shall lapse upon the giving of the notification, and in a company to which the prohibition applies as aforesaid, that person may not be reappointed to the office of director unless the period of prohibition as aforesaid has elapsed.

The court may, on the application of the company, a director, a shareholder or a creditor, order the lapse of tenure of a director if it finds that any of the following has occurred:

A director who has breached the duty of disclosure under sections 225, 227a, 227(b), 232, 232a or 245a shall be deemed to have breached the duty of loyalty to the company.