Translation Notice — This is an English translation of a Hebrew law and may contain inaccuracies. In any dispute or legal matter, the original Hebrew text as published in Reshumot (ספר החוקים) is the sole authoritative and legally binding version.

Ordinance

Companies Ordinance [New Version]

פקודת החברות [נוסח חדש]

Chapter IX: Accounts, Audit and Supervision

Division A: Accounts and Balance Sheets

Source Reference

preamble-16.

1061(1)-(2)(a)]]

Keeping of Accounts

202.

(a)A company shall keep proper books of account in respect of —

(1)all sums of money received and expended, with details of the matters in respect of which they were received and expended;

(2)all sales and purchases of goods made by it;

(3)its assets and liabilities.

(b)The books of account shall be kept at the registered office of the company or at such other place as the directors think fit, and shall at all times be open to inspection by them.

(c)The Minister may prescribe by Regulations the period during which a company is required to retain vouchers and documents that served as the basis for entries in its books of account (hereinafter — vouchers), and may prescribe conditions and arrangements for the destruction of vouchers; where a voucher has been destroyed in accordance with the Regulations, the entry in the books of account shall be prima facie evidence of its contents.

Profit and Loss Account — Obligation to Present

203.

(a)Not later than 18 months after the registration of the company, and thereafter at least once in every calendar year, the directors are required to lay before the company in general meeting a profit and loss account, or, if the company is not formed to earn profits, an income and expenditure account; the first account shall cover the period elapsed since the date of the company's registration, and each subsequent account shall cover a period beginning at the end of the preceding accounting period and ending on a date not earlier than 9 months before the meeting, or, if the company carries on business or has an interest outside Israel, not earlier than 12 months before the meeting.

(b)The Minister may, where he sees special reason to do so, extend, in respect of a particular company, the said period of 18 months, or the said period of 9 or 12 months in respect of a particular year.

Submission of Accounts — Balance Sheet and Directors' Report

204.

The directors shall prepare and lay before the general meeting, in every calendar year, a balance sheet as at the date on which the profit and loss account or the income and expenditure account, as the case may be, is made up, and there shall be annexed to the balance sheet a report by the directors on the state of the company's affairs, the amount proposed to be paid by way of dividend, and the amount proposed to be carried to the reserve fund, general reserve or reserve account shown in the balance sheet so laid or to be shown in a subsequent balance sheet.

Contravention of Provisions — Imprisonment

205.

A director who wilfully causes a contravention of the provisions of Section 202, or who fails to take all reasonable steps to secure compliance by the company therewith or to comply with the provisions of Sections 203 or 204, shall be liable to Imprisonment of six months in respect of each offence; however, Imprisonment shall not be imposed unless the Court is of the opinion that the offence was committed wilfully.

Application of Provisions

206.

(a)The balance sheet of a Company shall contain a summary of its registered share capital, of the shares issued and of its liabilities and assets, with such particulars as are necessary to disclose their general nature, and shall distinguish between fixed assets and current assets, and shall state the manner in which the value of the fixed assets has been arrived at.

(b)The balance sheet shall state under separate headings the following amounts, in so far as they have not been written off as lost amounts:

(1)the preliminary expenses of the Company;

(2)expenses incurred in connection with the issue of shares or debentures;

(3)the value of goodwill, patents and trade marks, in so far as it is stated as a separate item in the books or can otherwise be ascertained from the books or from any Contract for the sale or acquisition of property which the Company is to acquire, or from any document in the possession of the Company relating to stamp duty on such a Contract or on any instrument for the transfer of such property.

(c)Where any liability of the Company is secured on any of its property otherwise than by operation of law, it shall be stated in the balance sheet that such security has been given, and it shall not be necessary to specify the property.

Contents of Balance Sheet

[1071(1)–(3)]

207. For the purposes of Sections 208 and 209 —

"subsidiary" —

(1)a Company, whether incorporated under this Ordinance or not, the shares of which are held — directly or through an agent — by another Company (hereinafter — the holding company), in any of the following circumstances:

(a)the aggregate of those shares exceeds, at the time of preparation of the accounts of the holding company, 50% of the issued share capital of the issuing Company;

[(8), (9)]

804 Book of Laws 37 10 Elul 5743, 19.08.1983

(b)the shares held by the holding Company confer upon it more than 50% of the voting power in the issuing Company;

(c)the holding Company has the power — other than a power arising solely by virtue of a trust deed for debentures or by virtue of shares issued to it under such a trust deed — to appoint, directly or indirectly, the majority of the directors or the majority of those performing the functions of a director irrespective of their title in the issuing Company;

(2)a Company the shares of which are held only as security by a Company whose ordinary business includes the lending of money shall not by reason thereof be deemed a subsidiary;

"profits and losses of a subsidiary" — profits and losses recorded in the accounts of a subsidiary drawn up to a date falling within the period covered by the accounts of the holding company, and if there are no such accounts for the subsidiary — the profits and losses recorded in the last existing account of the subsidiary within that period.

Holding Company

[1071(4)]

Content of Balance Sheet of Parent Company — Subsidiaries' Assets and Liabilities

208.

Where the assets of a Parent Company include shares of Subsidiaries or debts owed to it by Subsidiaries on account of a loan or for any other reason, the aggregate of all such assets shall be recorded in the balance sheet of the Parent Company separately from its other assets and distinguishing between shares and debts; and if the Parent Company is in turn indebted to Subsidiaries, the aggregate of such indebtedness shall be stated in its balance sheet separately from its other liabilities.

Statement on Profits and Losses of a Subsidiary — Loans and Emoluments

209.

(a)Where a Parent Company is the holder of shares in a Subsidiary, whether directly or through an agent, there shall be annexed to the balance sheet of the Parent Company a statement signed by the signatories to the balance sheet under Section 213, explaining how the profits and losses of the Subsidiary are reflected in the accounts of the Parent Company, or for the purposes of those accounts, to the extent that the matter concerns the Parent Company; and in particular there shall be explained how and to what extent provision has been made, in the accounts of the Subsidiary or in the accounts of the Parent Company or in the accounts of both, for the losses of the Subsidiary, and how and to what extent the directors of the Parent Company have taken into account the losses of the Subsidiary when determining the profits and losses of the Parent Company as they appear in its accounts.

(b)If the auditor's report on the Subsidiary's balance sheet, as referred to in Section 211, does not state, without qualification, that the auditor has obtained all the information and explanations required, and that the balance sheet has been properly prepared and gives a true and accurate view of the state of the company's affairs according to the best of the information and explanations given to the auditor and as shown by the books of the company — the particulars of the qualifications appearing in the report shall be stated in the statement to be annexed to the balance sheet of the Parent Company; however, it shall not be necessary to specify in the statement the amount of the profits and losses of a Subsidiary or any part of such profits or losses taken into account in any manner.

(c)If the directors of the Parent Company are unable, for any reason, to obtain the information required for the preparation of the statement on profits and losses of a Subsidiary, the directors signing the balance sheet shall so notify in writing, and such notification shall be annexed to the balance sheet in lieu of the statement.

Particulars Regarding Loans and Emoluments in Accounts

210.

The accounts required under this Ordinance to be laid before the company in general meeting each year shall contain —

(1)the amount of the loans made during the accounting period by the company, or by any other person under its guarantee, to any officer of the company, including loans repaid during the period, and the amount of loans so made in periods preceding the accounting period that have not been repaid by the end of the period; the provisions of this paragraph shall not apply to a loan so made by the company in the ordinary course of its business if such business includes the lending of money, nor to a loan not exceeding two hundred shekels made by the company to one of its employees pursuant to a practice adopted or intended to be adopted by it in the matter of loans to its employees, provided the directors have approved this;

(2)the aggregate of the amounts paid or payable by the company or any of its Subsidiaries to directors by way of emoluments for their services, including fees, percentages and other payments or any consideration given, directly or indirectly, to a director by reason of his being a director, and the monetary value of any allowance or benefit attaching to his office; the provisions of this paragraph shall not apply to a managing director, while in respect of any other director performing a function or holding a salaried office, it shall be sufficient to include in the aggregate only the amounts paid to him as directors' fees.

Auditor's Report

211.

(a)The auditor shall submit to the members a report on the accounts audited by him and on every balance sheet laid before the company in general meeting during his term of office, and shall state in the report whether he has received all the information and explanations that he required, and whether the balance sheet dealt with in the report has, in his opinion, been properly prepared and gives a true and accurate view of the state of the company's affairs according to the best of the information and explanations given to him and as shown by the books of the company.

(b)Where any requirement of Section 210 has not been complied with in respect of the accounts, the auditor of the company who has audited its accounts shall include in his report on the company's balance sheet such particulars as are required under that Section, insofar as he is reasonably able to do so.

Application of Securities Law Provisions in Lieu of Sections 206–211

212.

In respect of a company to which Chapter VI of the Securities Law, 5728-1968, applies, the provisions of that Chapter shall replace Sections 206 to 211.

Limitation on Application

213.

(a)The balance sheet shall be signed on behalf of the board of directors by two directors, and in a private company — by at least one director, and an auditor's report shall be attached to the balance sheet; if a copy of the balance sheet that was not signed in accordance with the provisions of this Section, or without a copy of the auditor's report attached thereto, is issued, sent or published, the Company and every officer thereof who knowingly participated in the default shall be liable to a Fine.

(b)A public company shall send, no later than seven days before the date of the general meeting, to all persons entitled to receive notice of its meetings, a copy of the balance sheet to be laid before the company and of every document required to be attached thereto by law, and the auditor's report; if the provisions of this subsection are contravened, the Company and every officer thereof who knowingly and wilfully approved or permitted the contravention shall be liable to a Fine.

Signing of the Balance Sheet and Attachment of the Report

Signing of the Balance Sheet

214.

(a)A member of a public company, whether or not entitled to have copies of the company's balance sheets sent to him, and every holder of a debenture thereof, is entitled, upon request, to receive free of charge a copy of the company's most recent balance sheet and every document required to be attached thereto by law, together with a copy of the auditor's report; if the company fails to comply with the entitled person's request within seven days, the Company and every officer thereof who knowingly participated in the default shall be liable to a continuing Fine, unless it is proved that the entitled person had previously demanded and received the document.

(b)A member or debenture holder of a private company is entitled to receive, within seven days after his request, a copy of the company's balance sheet and the auditor's report, in exchange for a sum fixed by the company and not exceeding the sum prescribed in the Regulations; if the company fails to comply with the request of the entitled person who has tendered the appropriate payment, the Company and every officer thereof who knowingly participated in the default shall be liable to a continuing Fine.

Debenture Holder's Right to Receive Copies

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Division B: Auditor

Obligation to Appoint an Auditor

215.

A company is required to appoint at every annual general meeting an auditor or auditors who shall serve in their office until the next annual general meeting.

Accounts by Directors

Appointment of Auditor

216.

(a)The directors may at any time before the first annual general meeting appoint the first auditors of the company, and they shall serve in their capacity until that meeting.

(b)At a general meeting the company may dismiss an auditor so appointed, after notice to that effect has been sent to him in the manner in which it is sent to members of the company, and appoint in his place an auditor proposed by one of the members, after notice of such proposal has been sent to the members of the company at least seven days before the day of the meeting.

(c)If the directors have not appointed an auditor as provided in subsection (a), the company may at a general meeting appoint the first auditors, and from that point forward the directors shall not be competent to appoint auditors.

Appointment by the Registrar

217.

If an auditor has not been appointed at an annual general meeting, the Registrar may, upon the application of any member of the company, appoint an auditor for that year and fix the remuneration to be paid to him by the company for his services.

Auditor Whose Office Has Become Vacant

Vacancy in the Office of Auditor

218.

If the office of an auditor becomes casually vacant, the directors may appoint another in his place; however, the remaining auditors may continue to act so long as the office remains vacant.

Auditor

Disqualification from Serving as Auditor

219.

The following shall not be qualified to be appointed as auditors:

(1)an officer of the company;

(2)in a public company — a partner of an officer of the company or a person employed by such officer.

Auditor

Procedure for Appointment of Auditor

220.

(a)No person shall be appointed as auditor unless a shareholder has given notice to the company, at least fourteen days before the annual general meeting, of his intention to propose that person for the office of auditor, and the company has sent a copy of the notice to the auditor about to retire and has notified shareholders of the proposal, by advertisement or in any other manner permitted by the Regulations, at least seven days before the meeting; the provisions of this subsection shall not apply to the re-appointment of a retiring auditor.

(b)If it is found that after receipt of notice of a proposal to appoint an auditor the company is about to convene an annual general meeting that would fall within the fourteen days referred to in subsection (a), the notice to the company shall be deemed to have been duly given, and the company's notice of the proposal may be given together with the notice of the general meeting.

Auditor

Remuneration of Auditor

221.

The company shall fix at a general meeting the remuneration of the auditor; however, the remuneration of an auditor appointed before the first annual general meeting or appointed to fill a casual vacancy may be fixed by the directors.

Powers of Auditor

222. (a) An auditor of a company is entitled at all times to inspect its books, accounts and vouchers, and may require from officers thereof any information and explanation that he needs for the purpose of fulfilling his duties, to attend any general meeting of the company at which accounts that he has audited or on which he has reported are to be presented, and to give any notice or explanation that he sees fit with respect to those accounts.

(b)A person employed by a company as an auditor shall be subject to the provisions of Sections 89 and 90 in the same manner as they apply to a director.

Chapter C: Investigation of Affairs

223.

(a)The Minister may appoint a competent inspector to investigate the affairs of a company and to report thereon —

(1)in a banking company — upon the application of the Registrar or the Attorney General, and, if it has a share capital — also upon the application of members who hold at least one-third of the issued shares;

(2)in any other company, if it has a share capital — upon the application of members who hold at least one-tenth of the issued shares, and if it has no share capital — upon the application of members comprising at least one-fifth of the number of members registered in the register of members.

(b)An application for investigation shall be supported by such evidence as the Minister may require in order to show that the applicants have good reason for requiring the investigation and that they have no malicious motive in doing so, and he may, before appointing an inspector, require the applicants to provide security in an amount to be fixed by him for the payment of the costs of the investigation.

Appointment of Inspector

224.

All officers and agents of the company are required to produce to the inspector all books and documents in their custody or possession; an inspector may examine them on oath with respect to the affairs of the company and for that purpose is empowered to administer the oath.

Inspector

Powers of the Inspector

225.

Upon completion of the investigation, the inspector shall submit his opinion in a report to the Minister, in writing or in print as the Minister shall direct; the Minister shall send a copy of the report to the registered office of the company; an additional copy shall be delivered to the applicants for the investigation upon their request.

Report to the Minister

226.

(a)If the Minister concludes from the report that a certain person has committed a criminal offence in connection with the company, and that it is appropriate for the Attorney General to institute a prosecution in respect thereof — he shall refer the matter to the Attorney General.

(b)If the Attorney General directs that a prosecution be instituted as referred to in subsection (a), all present and past officers and agents of the company, other than the accused, shall be required to render him all reasonable assistance in connection with the prosecution; for this purpose, "agents" includes the bankers and solicitors of the company and any person employed by it as an auditor, whether or not they are officers thereof.

Criminal Prosecution

227.

(a)The costs of the investigation, including all expenses incidental thereto, shall be borne —

(1)if the Attorney General has directed the institution of a prosecution — by the State Treasury;

(2)in any other case — by the company, unless the Minister sees fit to impose them on the applicants, or part thereof on the company and part on the applicants.

(b)If the company fails to pay the amount it is required to pay under this Section, the applicants shall pay the deficit, provided that the total of their payments under subsection (a)(2) and under this subsection shall not exceed the amount of the security they furnished at the direction of the Minister under Section 223(b); the remainder of the unpaid costs shall be borne by the State Treasury.

Costs of the Investigation

228.

A company may by special resolution appoint an inspector to investigate its affairs; an inspector so appointed shall have all the powers and duties of an inspector appointed by the Minister, except that instead of reporting to the Minister he shall be required to report in such manner and to such persons as the company shall direct at a general meeting.

Penalties

229.

Any officer or agent who refuses to produce to the inspector a book or document that he is required to produce under this Chapter, or to answer a question put to him by the inspector with respect to the affairs of the company, the inspector may certify the refusal in writing to the court, and the court may thereupon inquire into the matter, and after hearing witnesses produced against the person refusing or on his behalf, and after hearing his defence, may punish him as if he were guilty of contempt of court.

Admissibility as Evidence

Report of the Inspector

230.

A copy of the inspector's report, certified under the seal of the company whose affairs he investigated, shall be admissible in any legal proceedings as evidence of the inspector's opinion with respect to any matter contained in the report.

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