Government Companies Law, 5735-1975
חוק החברות הממשלתיות, תשל"ה-1975
Published: 1975-07-04Consolidated Hebrew text as of 2026-08-02 · Last amended 2026-07-28✓ Amendment status checked against the Knesset legislation record on 2026-09-29
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Chapter VIII-B: Protection of Vital Interests of the State
Definitions§
59g.
In this Chapter —
"means of control", "interested party", "control" — as defined in the Securities Law;
"holding" — including acquisition as well as both together, as the meanings of these terms in the Securities Law, and including transfer or charge (security interest);
"material influence" — the ability to influence the activity of a company under privatisation in a material manner that does not constitute control and does not derive from the mere holding of means of control, including such ability deriving from a right granted to a person in the articles of association of the company or in a written or oral agreement with the controlling shareholder, except where the said right has been granted to an Israeli banking corporation; for this purpose, "Israeli banking corporation" — a banking corporation as defined in the Banking (Licensing) Law, 5741-1981, that has received a licence under paragraph (1) of section 4(a) of that Law, but without derogating from the generality of the foregoing —
(1)a person shall be deemed to have material influence if that person holds the right to appoint an office holder in the company;
(2)a person shall be presumed to have material influence in a company if that person holds twenty-five per cent or more of any means of control or any proprietary rights in the company;
"the Ministers" — the Prime Minister and the Minister of Finance;
"proprietary rights" — each of the following:
(1)the right to participate in the profits of a company under privatisation;
(2)the right to a share in the surplus assets of a company under privatisation;
(3)the right to a share conferring a right from among the rights listed in paragraphs (1) or (2);
"Companies Law" — (Repealed)
"Penal Law" — the Penal Law, 5737-1977.
Determination of a Vital Interest of the State§
59h.
(a)The Ministers, with the approval of the Ministers' Committee, and in consultation with the Minister responsible for the affairs of the company and with the Authority, may declare by Order that the State has one or more vital interests in connection with a company under privatisation (in this Chapter — the company); if the Minister of Defence is the Minister responsible for the affairs of the company, the Order shall be issued by the Ministers together with the Minister of Defence; in this Chapter, "vital interest" means each of the following:
(1)ensuring the continued existence of activities that are vital to the security of the State or to its foreign relations, or ensuring the continuity of adequate supply of essential services to the public;
(2)preserving the character of the company as an Israeli company whose centre of business and management shall be in Israel in a manner to be determined by the Ministers;
(3)supervision of the control, exploitation and development of quarries or natural resources;
(4)promotion of competition or prevention of concentration in the economy;
(5)prevention of the formation of a position of influence over the company by hostile elements or by elements liable to harm the security of the State or its foreign affairs;
(6)prevention of the disclosure or exposure of confidential information, on grounds of State security or the foreign relations of the State.
(b)Before the Ministers issue an Order as referred to in subsection (a), they shall give the company and any person who is a controlling shareholder or interested party therein an opportunity to present their arguments.
(c)The Ministers shall specify in the Order under subsection (a) the vital interest of the State in connection with the company on the basis of which the Order was issued.
Restrictions on Transfer of Control§
59i.
No person shall transfer to another control of a company in respect of which an Order has been issued under section 59h, nor acquire control of such a company, nor hold control thereof, unless that person has received prior written approval from the Ministers and subject to the conditions determined by the Ministers (in this Chapter — control restrictions); in an Order under section 59h, the Ministers may provide that the provisions of this section, in whole or in part, shall not apply to the company; the Ministers may grant such approval if they are satisfied that such control would not harm the vital interest on the basis of which the Order referred to in section 59h was issued.
Determination of Restrictions, Conditions and Provisions in an Order§
59j.
(a)In an Order under section 59h, the Ministers may determine, with the approval of the Ministers' Committee and in consultation with the Authority, for the purpose of protecting each of the vital interests on the basis of which the Order was issued, restrictions, conditions and provisions as set out below, all or some of them, all as shall be determined in the Order:
(1)that no person shall hold means of control or material influence in the company, of the types and in the proportions to be determined in the Order, without prior approval from the Ministers and subject to the conditions to be determined (in this Chapter — means of control and holding restrictions); the Ministers may grant such approval if they are satisfied that the holding of means of control in the proportion requested or the requested material influence would not harm the vital interest on the basis of which the Order referred to in section 59h was issued;
(2)that control or holding of means of control or material influence in the company of the types and in the proportions to be determined in the Order shall be in the hands of an Israeli citizen and resident of Israel, including by means of determining a maximum proportion of means of control to be held by a person who is not a citizen or resident as aforesaid (in this Chapter — the Israeli restriction);
(3)that the day-to-day management of the company and its centre of business shall be in Israel;
(4)an obligation to provide information to the Ministers upon their demand, on matters connected to the vital interests in the company, as shall be specified in the demand; nothing in this paragraph shall derogate from any other obligation to provide information that exists under any law;
(5)that, on grounds of State security, office holders in the company, all or some of them, and other persons holding positions in the company, as shall be determined in the Order, shall be Israeli citizens and residents of Israel, and that these, all or some of them, shall hold appropriate security clearance as determined by the competent security authorities;
(6)that the transfer or charge (security interest) of certain assets of the company or of rights therein, which in the opinion of the Ministers are required for ensuring the vital interests, shall require prior approval of the Ministers, and also a determination with respect to the validity of acts performed in contravention of this paragraph, vis-à-vis persons who knew or who could have known of them;
(7)that voluntary winding-up proceedings of the company, a compromise or arrangement in respect thereof, as well as a change or reorganisation of the structure of the company, its merger or its demerger, shall require prior approval from the Ministers;
(8)a determination that a person shall not transfer control, means of control or material influence in the company if as a result of the transfer the control restrictions and the means of control and holding restrictions would be violated, unless the transferee has presented to that person an approval under this Chapter and the Orders made thereunder;
(9)provisions, pursuant to Government decisions relating to the matter, with respect to the measures required for the protection of the computerised systems and information bases of the company that are used for the provision of services, the operation of and control over the computerised systems;
(10)that in special cases the company shall be entitled to compensation from the State for harm caused to it directly by reason of compliance with a provision of the Order.
(b)A person who held means of control in a company in respect of which an Order has been issued under section 59h, at the time the Order was issued, shall be deemed, as regards his holding at that time, in the proportion requiring approval under this Law, which was duly reported, as if it had been approved by the Ministers as referred to in subsection (a)(1); however, any holding beyond his holdings at that time shall require prior written approval of the Ministers; nothing in the provisions of this subsection shall derogate from the obligation to obtain the approval of the Ministers for any additional holding in the proportions determined in the Order.
Appointment of an Observer§
59k.
(a)In an Order as referred to in section 59h, the Ministers may provide that an observer shall be appointed to meetings of the board of directors of the company and its committees (in this Chapter — the observer).
(b)The observer shall be a State employee, with qualifications equivalent to those of a director under Chapter III.
(c)Notice of meetings of the board of directors and its committees shall also be given to the observer, and the observer shall be entitled to participate in any meeting of the board of directors and its committees.
(d)The observer's right to receive information from the company shall be equivalent to that of a director.
(e)If the observer considers that the company is about to adopt a decision in contravention of a provision of the Order, the observer shall notify the company and the Ministers thereof without delay.
(f)Where the observer has given notice as referred to in subsection (e), the company shall not be entitled to adopt the decision for ten days from the date of the observer's notice, and if adopted it shall have no validity.
(g)If the Ministers have notified, within the ten days referred to in subsection (f), that the decision referred to in subsection (e) would violate the provisions of the Order, the company shall not be entitled to adopt the decision, and if adopted it shall have no validity.
(h)The provisions of section 59n(e) to (f) shall apply to the actions of the observer, with the necessary modifications.
Disclosure of Confidential Information§
59l.
(a)Where an Order has been issued under section 59h on the basis of a vital interest as referred to in paragraph (6) of the definition of "vital interest" in that section, the Ministers may prescribe in an Order that, notwithstanding the provisions of any law and subject to the provisions of sections 19(a)(2) and 36c(b) of the Securities Law, insofar as they apply to the company and to restrictions, conditions or provisions imposed upon it:
(1)no document or information in connection with the vital interest as aforesaid shall be transmitted or disclosed to the knowledge of office holders, or of certain shareholders in the company, or of a person who has a material influence in the company, as the Ministers shall prescribe in the Order;
(2)the transmission or disclosure of a document or information in connection with the vital interest shall be restricted, in the manner prescribed by the Ministers, or its transfer shall be prevented to any person not authorised in writing by the Ministers or by a person appointed by the Ministers for that purpose.
(b)Where the Ministers have prescribed restrictions under subsection (a) on the transmission of information to shareholders or office holders, those shareholders or office holders shall, notwithstanding the provisions of any law, be exempt, in the event of a breach, from liability imposed upon them under any law, if that breach was caused solely by reason of not having received the information withheld from them as aforesaid, and the non-transmission of the information as aforesaid shall not be regarded as a breach of a duty under any law, all subject to the provisions of sections 19(a)(2) and 36c(b) of the Securities Law, insofar as they apply to the company and to restrictions, conditions or provisions imposed upon it.
Enforcement and Reporting§
59m.
(a)The Ministers may prescribe in an Order under section 59h –
(1)conditions, provisions and restrictions on the company, as well as methods of supervision and reporting obligations concerning its activities and engagements, all where in their opinion they are required for the protection of vital interests, including provisions concerning reporting, special management and registration of the holders of its securities, generally or at rates prescribed, or provisions concerning restrictions that shall apply to the allotment of securities of the company, as well as restrictions on the use of means of control and the rights attached thereto, or concerning the validity, as against the company, of acts performed or decisions adopted in contravention of the restrictions imposed, by a person who has not received approval to control the company or to hold a material influence or means of control in it;
(2)that a holder of two and a half per cent or more of any class of means of control in a company more than three-quarters of whose issued share capital is held by the public and whose shares are listed for trading on a stock exchange, shall report to the company and to the Authority on its holdings as aforesaid, on those who control it, on any person holding more than 10% of any class of means of control in it, and on the members of the board of directors of the holder of the means of control as aforesaid; the Ministers may, for the purpose of ensuring reporting under this paragraph, prescribe restrictions concerning the use of the means of control and the rights attached thereto, including concerning the right to vote at the general meeting or the right to receive a dividend.
(b)Where the Ministers have prescribed in an Order restrictions as referred to in section 59j(a)(1) or (2), they may prescribe in an Order provisions and conditions concerning the holding of means of control, or control or material influence in the company, including provisions making the validity of acts in relation thereto, in whole or in part, contingent upon prior approval by the Ministers, and they may refuse to grant such approval if, as a result thereof, there is a concern that a vital interest will be harmed.
(c)Where a person has held, without the approval of the Ministers, control or means of control in the company in excess of the rate prescribed in an Order under section 59j, that person shall be required to sell them in accordance with the provisions under this Chapter; the holder, or any person acting on that person's behalf, shall not be entitled to exercise the rights by virtue of the control or means of control or by virtue of the material influence held by that person, or the right to receive a dividend; without derogating from the foregoing, the Ministers may prescribe in an Order provisions concerning the manner and time for the sale of the control or means of control, including provisions concerning the appointment of a receiver.
Ensuring the Continuation of Activities§
59n.
(a)Where an Order has been issued under section 59h on the basis of a vital interest as referred to in paragraph (1) of the definition of "vital interest" in that section, and the company has ceased to carry out a vital activity or to provide a vital service as referred to in that paragraph, or the Ministers are of the opinion that there is a reasonable concern that the company will cease to supply them as aforesaid, and the Ministers have ascertained that it is necessary to ensure continuity in the activity or in the provision of the service or to prevent its disruption or cessation, they may, with the approval of the Ministers' Committee and after consultation with the Authority, direct the company by Order to continue the activity or to provide the service, for a period and on conditions as they shall direct.
(b)Where an Order has been issued under subsection (a), and the person to whom the Order applies has not complied with what is stated therein, the Ministers may, by Order, appoint a person to be responsible for the continuation of the provision of the service or the carrying out of the activity and for the management of the facilities and assets by means of which the activity or service is provided (in this Chapter – the Administrator), and they may specify that person's functions in the Order.
(c)In carrying out that person's functions under this section, the Administrator shall act in accordance with the directions of the Ministers and shall have all the powers necessary to ensure the continuation of the activity or the provision of the service, including the powers necessary for the management of the company.
(d)The appointment of the Administrator under this section shall be for a period to be determined by the Ministers, not exceeding one year; however, the Ministers may extend the appointment for one additional period not exceeding one year, and they may also replace the Administrator at any time.
(e)The fulfilment of an obligation and the performance of an act by virtue of an Order issued under this section shall be carried out by the Administrator, by the company, by office holders in it and by its employees, in such a manner as will prevent or minimise, to the extent possible, any damage liable to be caused to the company or to another party as a result of its performance.
(f)The fulfilment of an obligation and the performance of an act by virtue of an Order issued under this section by the Administrator or by an office holder in the company, or by any person acting on their behalf, carried out by them for the purpose of proper compliance with a direction given by virtue of an Order under this section, notwithstanding the provisions of any law, shall not serve as grounds for a civil claim by the company, its shareholders or creditors, or by any other party, against them, provided that they acted in good faith and in accordance with the provisions of this section.
(g)In complying with a direction by virtue of an Order issued under this section, the company, its office holders or any of its employees shall not bear criminal or civil liability for any act performed in the course of complying with a direction as aforesaid, except in circumstances in which a State employee would bear liability for such an act.
(h)The Ministers may prescribe rules for the grant of compensation from the State or in any other manner in respect of damage caused directly to the company as a result of acts or directions under this section.
Damages§
59o.
Without derogating from the provisions of any law, a person who breaches an Order or direction issued under this Chapter shall be liable to pay compensation or indemnification in respect of any damage or expense caused to the State, to the company or to any third party as a result thereof.
Penalties§
59p.
(a)A person who transfers control in a company to another, or who acquires or holds such control, without approval and in contravention of section 59j(a)(2) or in contravention of conditions prescribed in such approval, is liable to imprisonment of three years or a fine of ten times the fine referred to in section 61(a)(4) of the Penal Law and an additional fine of ten times the fine referred to in section 61(c) of the Penal Law for each additional day on which the offence continues.
(b)A person who does any of the following is liable to imprisonment of three years or a fine of four times the fine referred to in section 61(a)(4) of the Penal Law:
(1)provides incorrect particulars in an application submitted to obtain an approval required under sections 59i or 59j(a)(1), and the Orders made thereunder;
(2)breaches the provisions of an Order concerning non-disclosure of information under section 59l;
(3)breaches a provision, restriction or condition prescribed in an Order under section 59n concerning the continuation of the provision of a vital service.
(c)A person who breaches a provision, restriction or condition prescribed in an Order in any of the following, is liable to imprisonment of six months or a fine as referred to in section 61(a)(4) of the Penal Law; where the offence is a continuing offence, that person is also liable to an additional fine of ten times the fine referred to in section 61(c) of the Penal Law for each day on which the offence continues:
(1)a holder of a material influence or means of control in the company without approval, in contravention of a determination under section 59j(a)(1) or in contravention of a condition prescribed in such approval;
(2)a holder of control or means of control in the company in contravention of a determination under section 59j(a)(2);
(3)a person who manages the company or maintains its centre of business in contravention of a determination under section 59j(a)(3);
(4)a person who fails to transmit information to the Ministers in contravention of a determination under section 59j(a)(4);
(5)a person who serves as an office holder or other functionary in the company, or who appoints or employs an office holder or other functionary in the company, in contravention of a determination under section 59j(a)(5);
(6)a person who transfers or charges an asset of the company or rights therein in contravention of a determination under section 59j(a)(6);
(7)a person who brings about voluntary winding-up proceedings of the company, a compromise or arrangement in respect of it, a change or reorganisation of the structure of the company, its merger or its division, without approval, in contravention of a determination under section 59j(a)(7) or in contravention of a condition prescribed in such approval;
(8)a person who fails to comply with provisions under section 59j(a)(9);
(9)a person who fails to comply with provisions issued by virtue of a determination under section 59k;
(10)a person who fails to comply with a condition, provision or restriction under section 59m(a) or (b).
(d)A person who transfers control, material influence or means of control in the company to another without having been presented with approval by the transferee, in contravention of a determination under section 59j(a)(8), is liable to a fine as referred to in section 61(a)(4) of the Penal Law.
Liability of Office Holders§
59q.
(a)An office holder in a company is required to supervise and to do everything possible to prevent offences under section 59p by the company or by any of its employees; a person who breaches that person's obligation under this section is liable to a fine of five times the fine referred to in section 61(a)(4) of the Penal Law; for the purposes of this section, "office holder in a company" means a director, an active manager in the company, a partner other than a limited partner, or another functionary in the company who is responsible on its behalf for the field in which the offence was committed.
(b)Where an offence under section 59p has been committed by the company or by any of its employees, it shall be presumed that an office holder in the company has breached that person's obligation under subsection (a), unless that person proves that everything possible was done to fulfil the obligation.
Non-Validity of an Act in Contravention of this Chapter§
59r.
No validity shall attach to an act performed by the company in contravention of the provisions of this Chapter or in contravention of an Order or direction made thereunder; nothing in this provision shall prejudice rights acquired by a third party, if that party did not know and could not have known that the act was performed in contravention of this Chapter or of an Order or direction made thereunder.
Statutory Provisions and Other Provisions§
59s.
(a)This Chapter is intended to add to the provisions of any law and not to derogate therefrom, unless expressly provided otherwise in this Chapter.
(b)The existence of criminal proceedings under this Chapter shall not derogate from any right or power to take other proceedings under this Chapter or the Orders made thereunder.
(c)The District Court may, upon application by the State, order a person who has breached provisions, conditions or restrictions under this Chapter or an Order issued thereunder to cease doing so or to comply with them, as the case may be.
Application§
59t.
(a)The restrictions, conditions and provisions prescribed in an Order under this Chapter, in whole or in part, shall apply for a fixed period or generally, and may apply after the privatisation of the company, all as prescribed in the Order.
(b)For the avoidance of doubt, this section shall also apply in respect of a government subsidiary, with the necessary modifications.
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