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Law

Companies Law, 5759-1999

חוק החברות

Part 8: Acquisition of Companies

Chapter I: Merger

Approvals within the Company

314.

A merger requires the approval of the board of directors and the general meeting, in each of the merging companies, in accordance with the provisions of this Chapter.

Merger Impairing Solvency of the Company

315.

(a)The board of directors of a merging company, when considering whether to approve a merger, shall deliberate and determine, having regard to the financial condition of the merging companies, whether in its opinion there is a reasonable concern that as a result of the merger the absorbing company will not be able to fulfill the company's obligations to its creditors.

(b)If the board of directors has determined that such a concern as referred to in subsection (a) exists, it shall not approve the merger.

Merger Proposal

316.

If each of the boards of directors of the merging companies has approved the merger, they shall jointly prepare a proposal for approval of the merger (hereinafter – merger proposal) and shall sign it.

Notice to the Registrar of Companies

317.

(a)A merging company shall deliver the merger proposal to the Registrar of Companies within three days of the date of convening the general meeting.

(b)A merging company shall notify the Registrar of Companies of the resolution of the general meeting within three days of the date on which the resolution was adopted, shall notify of the giving of notices to creditors pursuant to Section 318, and shall also deliver to the Registrar a copy of the court order pursuant to Sections 319 or 321, within three days of the date on which such order was given.

Notice to Creditors

318.

(a)A merging company shall send the merger proposal to the secured creditors of the company no later than three days from the date of delivery of the merger proposal to the Registrar of Companies.

(b)A merging company shall notify its unsecured creditors of the merger proposal and its contents, as the Minister shall prescribe.

Creditor Objections

319.

The court may, upon application by a creditor of a merging company, order the delay or prevention of the execution of the merger, if it finds that there is a reasonable concern that as a result of the merger the absorbing company will not be able to fulfill the obligations of the merging company; and the court may also give instructions for the protection of the rights of creditors.

Approval of the Merger

320.

[Amendment: 5765, 5771-3, 5771-4]

(a)A merger requires the approval of the general meeting in each of the merging companies.

(a1)Notwithstanding the provisions of subsection (a), a merger does not require the approval of the general meeting in any of the following:

(1)in a target company that is under the full control and ownership of the absorbing company;

(2)in an absorbing company, if all of the following conditions are met:

(a)the merger does not entail any amendment to the memorandum or articles of association of the absorbing company;

(b)the absorbing company does not allot, in the framework of the merger, more than twenty percent of the voting rights in the company, and as a result of the allotment no person will become a controlling shareholder of the absorbing company as defined in Section 268; for this purpose, securities convertible or exercisable into shares, which that person holds or which will be allotted to that person in the framework of the merger, shall be deemed to have been converted or exercised;

(c)the circumstances requiring approval of the general meeting pursuant to subsections (c) and (d) do not exist.

(b)If the shares of the target company are divided into classes, the merger also requires the approval of class meetings in the target company.

(c)In a vote at the general meeting of a merging company whose shares are held by the other merging company or by a person holding twenty-five percent or more of any class of means of control in the other merging company, the merger shall not be approved if it is opposed by shareholders holding a majority of the voting rights among those participating in the vote, excluding abstentions, who are not counted among the other merging company, the person holding as aforesaid, or anyone on their behalf, including their relatives or corporations under their control; however, a person shall not be regarded as holding in the other merging company if such holding derives solely from holding shares in the merging company.

(d)If a person holds twenty-five percent or more of any class of means of control in a number of merging companies, the merger proposal shall require approval in accordance with the provisions of subsection (c) in each of the said merging companies.

(e)Shareholders participating in the vote shall notify the company prior to the vote, or, if the vote is by means of a voting instrument, on the voting instrument, whether their shares are held by the other merging company or by a person as referred to in subsection (c), or whether they are not so held; if a shareholder has not given such notice, that shareholder shall not vote and their vote shall not be counted.

(f)Notwithstanding the provisions of subsection (c), with respect to a merger proposal that constitutes a transaction requiring approval pursuant to Section 275(a), (c) and (d), the provisions of that Section shall apply with regard to the approval of the merger.

Court Approval

321.

(a)If the general meeting of a merging company has approved the merger proposal pursuant to Section 320(a), the court may, upon application by shareholders holding at least twenty-five percent of the total voting rights in the company, determine that the company has approved the merger, even if the merger proposal did not receive the approval of all class meetings of the merging company pursuant to Section 320(b), or even if the merger proposal did not receive the required majority at the general meeting of the merging company pursuant to Section 320(c).

(b)The court shall not approve an application for approval of a merger unless it is satisfied that the merger proposal is fair and reasonable, having regard to the valuation of the merging companies and the consideration offered to the shareholders.

Notice Regarding the Antitrust Authority

322.

[Amendment: 5779]

If a company has received a notice from the Commissioner of Competition, as defined in the Economic Competition Law, 5748–1988, the company shall notify the Registrar, within three days of the date of receipt of the notice, whether the notice has the effect of delaying the execution of the merger, preventing it, or removing such delay or prevention; if a notice of prevention or delay has been received by the Registrar of Companies, the merger shall not be executed as long as the prevention or delay has not been removed.

Consequences of the Merger

323.

[Amendment: 5765]

Once all the approvals required under this Chapter for a merger have been received by the Registrar of Companies in each of the merging companies, and thirty days have elapsed from the date of the resolution of the general meeting in each of the merging companies and fifty days have elapsed from the date on which the merger proposals were delivered to the Registrar of Companies, the merger shall be executed as follows:

(1)all assets and liabilities of the target company, including contingent, future, known and unknown liabilities, shall be transferred and vested in the absorbing company;

(2)the absorbing company shall be deemed to be the target company in any legal proceeding, including enforcement proceedings;

(3)the Registrar shall transfer the register of charges, as defined in Section 181 of the Companies Ordinance, of the target company, to the register of charges of the absorbing company;

(4)the target company shall be dissolved and the Registrar shall strike it from its registers;

(5)the Registrar shall issue to the absorbing company a certificate attesting to the execution of the merger and shall record the merger in the registers of the absorbing company.

Freedom of Contract

324.

Nothing in the provisions of this Chapter shall prevent a company from undertaking, by Contract or by articles of association, to refrain from executing a merger or to make the execution of a merger subject to conditions.

325.

A floating charge over all or some of the assets of one merging company, which imposes a restriction on the company's right to create charges, shall not take priority over a charge created in the other merging company prior to the merger.

Regulations Regarding Merger

326.

[Amendment: 5771-4]

The Minister may prescribe provisions for the implementation of this Chapter, including with regard to the particulars to be included in the merger proposal and with regard to additional information rights to be provided to creditors or classes of creditors, as well as with regard to the registration of transactions arising from the merger; with respect to a merging company that is a public company, or that is a private company that is a debenture company, the provisions shall be prescribed after consultation with the Israel Securities Authority.

Transitional Provisions Regarding Merger

327.

[Amendment: 5765]

(a)With respect to a company incorporated prior to the commencement of this Law, it shall be deemed as if its articles of association contained a provision whereby approval of a merger requires a majority at the general meeting of three-quarters of the shareholders participating in the vote, excluding abstentions, and the provisions of Section 20 shall apply.

(b)If floating charges are imposed on the assets of a number of merging companies, at least one of which was created on the eve of the commencement of this Law, in such a manner that after the merger it will not be possible to separate the assets subject to each floating charge, the floating charges shall crystallize prior to the merger, unless the consent of the creditors for whose benefit the said charges are imposed has been obtained to amend the charges in a manner that creates a distinction between the assets subject to each charge, or to the distribution of the proceeds from the realization of the assets subject to those charges.

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Chapter II: Special Tender Offer

Acquisition of a Controlling Stake or Control

328.

[Amendment: 2005]

(a)In a public company, no acquisition shall be effected as a result of which a person becomes a holder of a controlling stake where there is no holder of a controlling stake in the company, and no acquisition shall be effected as a result of which the purchaser's holdings exceed forty-five percent of the voting rights in the company where no other person holds more than forty-five percent of the voting rights in the company, except by way of a tender offer in accordance with the provisions of this Chapter (hereinafter – a special tender offer).

(b)The provision of subsection (a) shall not apply to –

(1)an acquisition of shares in a private placement, provided that the acquisition was approved at a general meeting as a private placement whose purpose is to grant the offeree a controlling stake where there is no holder of a controlling stake in the company, or as a private placement whose purpose is to grant forty-five percent of the voting rights in the company where there is no person in the company holding forty-five percent of the voting rights in the company;

(2)an acquisition from a holder of a controlling stake, as a result of which a person becomes a holder of a controlling stake;

(3)an acquisition from a person holding more than forty-five percent of the voting rights in the company, as a result of which the purchaser's holdings exceed forty-five percent of the voting rights in the company.

(c)The provisions of this Chapter shall apply to a special tender offer, in addition to the provisions under any law relating to tender offers, insofar as they do not conflict with the provisions under this Chapter.

Board of Directors' Opinion

329.

Where a special tender offer has been made, the board of directors of the target company shall render its opinion to the offerees regarding the advisability of the special tender offer, or shall refrain from rendering its opinion regarding the advisability of the special tender offer if it is unable to do so, provided that it shall report the reasons for its abstention; the board of directors shall also disclose any personal interest that each of the directors has in, or arising from, the tender offer.

Duties of Office Holders

330.

(a)An office holder in a target company who, by virtue of his position, carries out an act, other than acts referred to in subsection (b), whose purpose is to frustrate a special tender offer, whether existing or anticipated, or to impair the prospects of its acceptance, shall be liable to the offeror and to the offerees for any damage caused to them as a result of his actions, unless he acted in good faith and had reasonable grounds to believe that the action taken was in the best interests of the company.

(b)An office holder may negotiate with the offeror for the improvement of the terms of the offer, and may also negotiate with others for the formulation of a competing tender offer.

Shareholder Consent

331.

[Amendment: 2005, 2011-3]

(a)A special tender offer shall be addressed to all offerees, and the offerees may notify their acceptance of, or objection to, the special tender offer.

(b)A special tender offer shall not be accepted unless a majority of the votes among the offerees who have notified their position in relation to the offer have consented to the offer.

(c)In counting the votes of the offerees, the votes of a controlling shareholder of the offeror, as well as the votes of any person who has a personal interest in the acceptance of the special tender offer or of a holder of a controlling stake in the company, or of those acting on their behalf or on behalf of the offeror, including their relatives or corporations under their control, shall not be taken into account; the provisions of Section 276 shall apply, mutatis mutandis, to any person who has a personal interest.

(d)Where a special tender offer has been accepted, offerees who did not notify their position in relation to the offer, or who objected to it, may consent to the offer no later than four days from the final date for responding to the tender offer or at such other time as the Minister may prescribe for this purpose, and they shall be deemed to have consented to the offer from the outset.

Minimum Response

332.

A special tender offer shall not be accepted unless shares conferring at least five percent of the voting rights in the company have been purchased pursuant thereto.

Consequences of a Prohibited Acquisition

333.

[Amendment: 2005]

(a)Shares acquired in contravention of the provisions of this Chapter shall not confer any rights whatsoever and shall be dormant shares, within the meaning thereof in Section 308, for as long as they are held by the purchaser.

(b)Without prejudice to the provision of subsection (a), where a person's holdings of voting rights have increased, other than as a result of an acquisition in accordance with the provisions of Section 328, to a level conferring upon him a controlling stake where there is no holder of a controlling stake in the company, or to a level exceeding forty-five percent of the voting rights in the company where no other person holds more than forty-five percent of the voting rights in the company, including as a result of shares of the company becoming dormant due to a distribution, no voting rights shall be conferred on the shares held by him in excess of twenty-five percent or forty-five percent, as the case may be, for as long as they are held by him.

(b1)A shareholder shall report to the company regarding the shares held by him that do not confer voting rights as soon as practicable after becoming aware thereof.

(c)A breach of the provisions of this Chapter constitutes a breach of a statutory duty toward the shareholders of the company.

Subsequent Tender Offer and Subsequent Merger

334.

Where a special tender offer has been accepted, the offeror, any person who controlled the offeror at the time of the offer, and any corporation under their control, shall not, within one year from the date of the tender offer, make an additional tender offer for the acquisition of shares of the company, nor shall they effect a merger with the company, unless they undertook to do so in the special tender offer.

Regulations

335.

The Minister, after consultation with the Securities Authority, may prescribe provisions for the implementation of this Chapter, including with respect to the methods for delivering the special tender offer to the offerees and for receiving their notices, and in this regard may apply the provisions applicable to proxy statements; the Minister may also prescribe the timetables according to which a special tender offer shall be conducted and the time for the rendering of the board of directors' opinion.

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