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Law
Companies Law, 5759-1999
חוק החברות
Chapter V: Transactions with Interested Parties
Definition of Controlling Shareholder
268.
In this Chapter, "controlling shareholder" means the controlling shareholder as defined in Section 1, including a person who holds twenty-five percent or more of the voting rights at the general meeting of the Company if no other person holds more than fifty percent of the voting rights in the Company; for the purpose of holdings, two or more persons who hold voting rights in the Company and each of whom has a personal interest in the approval of the same transaction brought for the Company's approval shall be deemed to be holding jointly.
Duty of Disclosure
269.
[Amendment: 2005, 2011-4]
(a)An office holder in a company, or a controlling shareholder in a public company or in a private company that is a bond company, who is aware that he has a personal interest in an existing or proposed transaction of the company, shall disclose to the company, without delay, and no later than the board of directors meeting at which the transaction is first discussed, the nature of his personal interest, including any material facts or documents.
(b)The provisions of subsection (a) shall not apply where the personal interest arises solely from a personal interest of a relative in a transaction that is not an extraordinary transaction.
(c)An interested party, as defined in Section 270(5), or a person who will become a controlling shareholder as a result of a private placement, who is aware that he has a personal interest in the material private placement, shall disclose to the public company, without delay, the nature of his personal interest, including any material facts or documents.
Transactions Requiring Special Approvals
270.
[Amendment: 2005, 2011-3, 2011-4, 2013, 2014-2]
The following transactions of a company require approvals as set forth in this Chapter, provided that the transaction is in the best interests of the company:
(1)A transaction of a company with an office holder therein, and also a transaction of a company with another person in which an office holder of the company has a personal interest; however, the following shall not be deemed to have a personal interest:
(a)an office holder in both a company and a subsidiary that is wholly owned and controlled by it, shall not be deemed to have a personal interest in a transaction between the parent company and the subsidiary, solely by virtue of being an office holder in both of them or by virtue of being a shareholder or holder of a security convertible into shares in the parent company;
(b)an office holder in several subsidiaries that are wholly owned and controlled by the same person, shall not be deemed to have a personal interest in a transaction between such subsidiaries, solely by virtue of being an office holder in the contracting companies;
(2)An engagement by a company with an office holder therein who is not a director, with respect to the terms of his office and employment;
(3)An engagement by a company with a director therein with respect to the terms of his office and employment, in connection with his service as a director, and also in connection with his employment in other positions — if he is so employed;
(4)An extraordinary transaction of a public company with its controlling shareholder, or an extraordinary transaction of a public company with another person in which the controlling shareholder has a personal interest, including a private placement in which the controlling shareholder has a personal interest; and also an engagement by a public company with its controlling shareholder or a relative thereof, directly or indirectly, including through a company under his control, with respect to the receipt of services by the company, and also if he is also an office holder therein — with respect to the terms of his office and employment, and if he is an employee of the company and is not an office holder therein — with respect to his employment in the company;
(4a)An extraordinary transaction of a private company that is a bond company with its controlling shareholder, or an extraordinary transaction of such a company with another person in which the controlling shareholder has a personal interest, and also an engagement by such a company with its controlling shareholder or a relative thereof, directly or indirectly, including through a company under his control, with respect to the receipt of services by the company, and also if he is also an office holder therein — with respect to the terms of his office and employment, and if he is an employee of the company and is not an office holder therein — with respect to his employment in the company;
(5)
(a)A private placement in which one of the following conditions is met:
(1)A placement that confers twenty percent or more of the total voting rights in the company in practice prior to the issuance, where the consideration, in whole or in part, is not in cash or in securities listed for trading on a stock exchange, or is not at market terms, and as a result of which the holdings of a substantial shareholder in the company's securities will increase, or as a result of which a person will become a substantial shareholder after the issuance (in this Law — an interested party);
(2)As a result of which a person will become a controlling shareholder in the company;
(b)For the purpose of this paragraph, the aggregate of all private placements in which one of the following conditions is met shall be deemed to be a single private placement:
(1)They were made during a period of 12 consecutive months to the same offeree or to a person acting on his behalf, to his relative, to a corporation under his control or under the control of his relative, and where the offeree is a corporation — also to the controlling shareholders of the offeree, to the relative of the controlling shareholder, and to a corporation under the control of the controlling shareholder or under the control of his relative;
(2)They were made during a period of 12 consecutive months and the consideration was set in respect of the same asset, and different securities of one company shall be deemed to be the same asset;
(3)They constitute part of a single transaction or are contingent upon one another;
(c)For the purpose of market terms under this paragraph, a placement shall be deemed to be at market terms if the board of directors has determined, on the basis of detailed reasoning, that the placement is at market terms, unless proven otherwise; and for the purpose of holdings under this paragraph, securities convertible into or exercisable for shares, which that person holds or which will be issued to him pursuant to the private placement, shall be deemed to have been converted or exercised.
Non-Extraordinary Transactions
271.
A transaction in which the provisions of Section 270(1) apply, that is not an extraordinary transaction, requires approval by the board of directors, unless an alternative approval procedure has been established in the articles of association.
Extraordinary Transactions with Office Holders and Transactions with Non-Director Office Holders Regarding Terms of Office and Employment
272.
[Amendment: 2011-3, 2011-4, 2013]
(a)A transaction of a company in which the provisions of Section 270(1) apply and which is an extraordinary transaction, or a transaction of a private company that is not a bond company in which the provisions of Section 270(2) apply, requires approval by the audit committee and thereafter approval by the board of directors.
(b)If a private company that is not a bond company does not have an audit committee, the transaction requires approval by the board of directors alone if the office holder is not a director, and if the office holder is a director — also approval by the general meeting.
(c)
(1)A transaction of a public company or a private company that is a bond company, in which the provisions of Section 270(2) apply, other than a transaction with the general manager of the company as referred to in subsection (c1), requires approval by the compensation committee and thereafter approval by the board of directors.
(2)The approval of the compensation committee and the board of directors pursuant to paragraph (1) shall be in accordance with the compensation policy; however, the compensation committee and thereafter the board of directors may, in special cases, approve a transaction as referred to in that paragraph not in accordance with the compensation policy, provided that both of the following conditions are met:
(a)the compensation committee and thereafter the board of directors approved the transaction, inter alia, in accordance with the considerations enumerated in Section 267b(a), with reference to the matters set forth in Part A of the First Schedule A and provided that the terms set in the transaction include, inter alia, the provisions as detailed in Part B of that Schedule;
(b)the general meeting approved the transaction, provided that in a public company the conditions set forth in Section 267a(b)(1) or (2) are met.
(3)Notwithstanding the provisions of paragraph (2), in a company, other than a public grandchild company as defined in Section 267a(c), the compensation committee and thereafter the board of directors may, in special cases, approve a transaction as referred to in that paragraph even if the general meeting objected to approval of the transaction, provided that the compensation committee and thereafter the board of directors so resolved, on the basis of detailed reasoning, after reconsidering the transaction and examining, in such reconsideration, inter alia, the objection of the general meeting.
(c1)
(1)A transaction of a public company or a private company that is a bond company with the general manager of the company, in which the provisions of Section 270(2) apply, requires approval of the following in this order:
(a)the compensation committee;
(b)the board of directors;
(c)the general meeting, provided that in a public company the conditions set forth in Section 267a(b)(1) or (2) are met; with respect to approval by the general meeting pursuant to this sub-paragraph, the provisions of subsection (c)(3) shall apply.
(2)The approval of the compensation committee and the approval of the board of directors as referred to in paragraph (1) shall be in accordance with the compensation policy; however, the compensation committee and thereafter the board of directors may, in special cases, approve the transaction not in accordance with such policy, provided that the conditions set forth in subsection (c)(2)(a) are met; nothing in this subsection shall derogate from the provisions of paragraph (1)(c).
(3)Notwithstanding the provisions of paragraph (1)(c), the compensation committee may exempt from approval by the general meeting a transaction with a person who is a candidate to serve as general manager of the company in whom the conditions set forth in Section 240(b) apply, if it finds, on the basis of reasons it has detailed, that bringing the transaction before the general meeting for approval would frustrate the engagement, provided that the transaction is consistent with the compensation policy.
(d)Notwithstanding the provisions of subsections (a), (c) and (c1), a transaction in which the provisions of Section 270(2) apply that constitutes an amendment of an existing transaction, requires approval by the audit committee or the compensation committee, as applicable, alone, if that committee has approved that the amendment to the terms of the transaction is not material relative to the existing transaction.
Transaction with a Director Regarding Terms of Office and Employment
273.
[Amendment: 2011-4, 2013]
(a)A transaction of a company in which the provisions of Section 270(3) apply requires approval by the board of directors and thereafter approval by the general meeting, and in a public company and also in a private company that is a bond company, the transaction requires approval by the compensation committee prior to the approval of the board of directors.
(b)The approval of the compensation committee and the approval of the board of directors as referred to in subsection (a), in a public company and in a private company that is a bond company, shall be in accordance with the compensation policy; however, the compensation committee and thereafter the board of directors may, in special cases, approve the transaction not in accordance with such policy, provided that the conditions set forth in Section 272(c)(2)(a) are met, and further, in a public company — that the approval of the general meeting satisfies the conditions set forth in Section 267a(b)(1) or (2).
Private Placement
274.
A material private placement requires approval by the board of directors and thereafter approval by the general meeting.
Transaction with a Controlling Shareholder
275.
[Amendment: 2005, 2011-3, 2011-4, 2013]
(a)A transaction in which the provisions of Section 270(4) apply requires approval by the following in the order set forth below:
(1)the audit committee, and in a transaction with respect to terms of office and employment — the compensation committee;
(2)the board of directors;
(3)the general meeting, provided that one of the following conditions is met:
(a)the majority of votes at the general meeting includes a majority of all the votes of shareholders who have no personal interest in the approval of the transaction, participating in the vote; in counting the total votes of such shareholders, abstentions shall not be taken into account;
(b)the total votes of those objecting among the shareholders referred to in sub-paragraph (a) did not exceed two percent of the total voting rights in the company.
(a1)
(1)A transaction as referred to in subsection (a) for a period exceeding three years requires approval as set forth in that subsection once every three years.
(2)Notwithstanding the provisions of paragraph (1), a transaction as referred to in the opening part of Section 270(4) only, may be approved for a period exceeding three years, provided that the audit committee has approved that an engagement for such a period is reasonable in the circumstances of the matter.
(3)The provisions of paragraphs (1) and (2) shall apply to a transaction of a company that has become a public company, with respect to the period following its becoming a public company.
(b)The Minister may prescribe different percentages from the percentage referred to in subsection (a)(3)(b).
(c)A transaction in which the provisions of Section 270(4a) apply requires approval by the following only, in the order set forth below:
(1)the audit committee, and in a transaction with respect to terms of office and employment — the compensation committee;
(2)the board of directors;
(3)in a transaction with respect to terms of office and employment — the general meeting.
(c1)The approval of the compensation committee and the approval of the board of directors as referred to in subsections (a) and (c), in a transaction concerning terms of office and employment, shall be in accordance with the compensation policy; however, the compensation committee and thereafter the board of directors may, in special cases, approve the transaction not in accordance with such policy, provided that the conditions set forth in Section 272(c)(2)(a) are met; nothing in this subsection shall derogate from the provisions of subsection (c)(3).
(d)
(1)The approval of the audit committee or the compensation committee, as applicable (in this subsection — the committee) and the board of directors pursuant to the provisions of subsections (a) or (c), shall be given after the committee and the board of directors have examined, inter alia, whether the transaction includes a distribution.
(2)If the committee or the board of directors has determined that the transaction includes a distribution, the transaction shall be approved only after they have approved that the provisions of all applicable law regarding distribution have been complied with in that regard.
(3)With respect to a bond company, if the committee and the board of directors have determined that a transaction requiring their approval pursuant to subsections (a) or (c) does not include a distribution, they shall examine whether there is a reasonable concern that the transaction will prevent the company from being able to meet its existing and anticipated obligations when they fall due; if the committee or the board of directors has determined that such a concern exists, the transaction shall not be approved.
Disclosure of Personal Interest
276.
A shareholder participating in a vote pursuant to Section 275 shall notify the company prior to the vote at the general meeting, or, if the vote is by means of a voting instrument — on the voting instrument, whether or not he has a personal interest in the approval of the transaction; if a shareholder has not given such notice, he shall not vote and his vote shall not be counted.
Cumulative Approvals
277.
Where a transaction satisfies the conditions prescribed in more than one alternative among the alternatives set forth in Section 270, the transaction requires approvals in accordance with the provisions applicable to each of those alternatives.
Abstention of Interested Parties
278.
[Amendment: 2011-3]
(a)A person who has a personal interest in the approval of a transaction, other than a transaction as referred to in Section 271, brought before the audit committee or the board of directors for approval, shall not be present at the deliberation and shall not participate in the vote in the audit committee or the board of directors; however, an office holder who has a personal interest may be present for the purpose of presenting the transaction, if the chairperson of the audit committee or the chairperson of the board of directors, as applicable, has determined that his presence is required for the purpose of such presentation.
(b)Notwithstanding the provisions of subsection (a), a director may be present at a deliberation in the audit committee and participate in the vote, if a majority of the members of the audit committee have a personal interest in the approval of the transaction, and likewise a director may be present at a deliberation of the board of directors and participate in the vote, if a majority of the directors in the company have a personal interest in the approval of the transaction.
(c)If a majority of the directors on the board of directors of the company have a personal interest in the approval of a transaction as referred to in subsection (a), the transaction also requires approval by the general meeting.
Audit Committee in a Public Company and in a Private Company that is a Bond Company
279.
[Amendment: 2011-3, 2011-4]
An audit committee in a public company or in a private company that is a bond company shall not be entitled to grant an approval required under this Chapter, unless at the time of granting the approval it complies with the provisions of Section 115.
Void Transaction
280.
[Amendment: 2011-3, 2011-4]
(a)A transaction of a company with an office holder therein, or a transaction as referred to in Section 270(4) and (4a) with a controlling shareholder therein, shall have no effect as against the company and as against the office holder or the controlling shareholder, if the transaction was not approved in accordance with the provisions of this Chapter, including if a material defect occurred in the approval process, or if the transaction was carried out in material deviation from the approval.
(b)A transaction as referred to in subsection (a) shall also have no effect as against another person if that person was aware of the personal interest of the office holder or the controlling shareholder in the approval of the transaction, and knew or ought to have known of the absence of approval for the transaction as required under this Chapter.
Rescission of Transaction
281.
[Amendment: 2011-4]
A company may rescind a transaction with another person that requires approval as set forth in this Chapter, other than a transaction as referred to in Section 271, and may also claim compensation from that person for damage caused to it even without rescinding the transaction, if that person was aware of the personal interest of the office holder of the company in the approval of the transaction, or of the personal interest of the controlling shareholder in the public company or in the private company that is a bond company in the approval of the transaction, and knew or ought to have known of the absence of approval for the transaction as required under this Chapter.
Board of Directors Approval
282.
A person shall be presumed not to have been required to know of the absence of approval for a transaction as required under this Chapter, if he received the approval of the board of directors confirming that all required approvals for the transaction had been obtained.
Remedies
283.
[Amendment: 2011-4]
(a)An office holder who did not disclose his personal interest as set forth in Section 269 shall be deemed to have breached his duty of loyalty; a controlling shareholder in a public company or in a private company that is a bond company who did not disclose his personal interest as set forth in that section shall be deemed to have breached his duty of fairness.
(b)A company may claim compensation from an interested party who breached the duty of disclosure as set forth in Section 269, or from a shareholder who did not disclose his personal interest as set forth in Section 276, for damages caused to it as a result of the absence of such disclosure.
Regulations
284.
[Amendment: 2011-4, 2014-5]
The Minister may prescribe that the provisions of this Chapter shall not apply to various categories of transactions, provided that with respect to a public company or a bond company, such prescription shall be made after consultation with the Israel Securities Authority.
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