It should be noted that these words were made in the context of the duty of care imposed on the director, but in my view, they illustrate the great centrality that the law attributes to the role of the director in the "era of corporate governance" (Gross, The Era of Corporate Governance, at pp. 41 and 52; Assaf Eckstein and Kobi Kastiel, "Appointment of Directors: Theory, Evidence, Policy," Mishpatim 52 429, 433 (2023); on the centrality of the board of directors, see also the recent judgment in Delaware: West Palm Beach Firefighters' Pension Fund v. Moelis & Co., 311 A.3d 809 (Feb. 23rd 2024)). In the light of the aforesaid, it is clear that if care must be taken to ensure that the director does not act negligently, then all the more so that he does not deliberately abuse his position.
- From the general standard of conduct outlined by the duty of fiduciary, the legislature has decreed a number of sub-duties – which are not a closed list – that are explicitly listed in section 254 of the Companies Law (Civil Appeal 7829/18 Better Place Israel v. Agassi, paragraph 47 [Nevo] (February 8, 2022); The Verdnikov case, at paragraph 46; Kabub, Avraham-Gedaliah and Luxenburg, on page 2). In particular, the legislature established the prohibition on being in a conflict of interest (section 254(a)(1) of the Companies Law), the prohibition on competition in the company's business (section 254(a)(2) of the Companies Law), the prohibition on taking a business opportunity (section 254(a)(3) of the Companies Law) and the duty of disclosure (section 254(a)(4) to the Companies Law). In this context, it should be noted that there are those who argue that the prohibition on competition in the company's business and on taking a business opportunity from the company can be seen as a sub-derivative of the more general prohibition on being in a situation of conflict of interest (Zohar Goshen and Assaf Eckstein, Corporate Law 254 (2023) (hereinafter: Goshen and Eckstein); For more on the theoretical distinction between the prohibition on taking a business opportunity and the prohibition on conflict of interest and the prohibition on competition, See Kabub, Avraham-Gedaliah and Luxenburg, pp. 39-41). In any event, and since arguments regarding the main of these duties and prohibitions were raised in our case, their principles will be briefly detailed below.
- First, the general prohibition on being in a conflict of interest deals with an objective situation in which the officer's personal interest is in tension with the company's interest. The very fact that the officer is in such a situation is forbidden. Therefore, the law imposes on the officer a particularly stringent standard, which obligates him to take active action in order to extricate himself from such a situation (Buchbinder case, at p. 335).
- The prohibition on competition in the company's business, which is set forth in section 254(a)(2) of the Companies Law, is, in practice, a private case of the prohibition of being in a conflict of interest. In the meantime, it should be briefly stated that, similar to the prohibition on being in a conflict of interest, the language of the law is broad in this context as well; Thus, prima facie, whenever the officer engages in an occupation close to the company's field of activity, he may be found to have violated the law (Goshen and Eckstein, at p. 254; Gross, at p. 604). Notwithstanding the aforesaid, it should be noted that in view of the launch of this prohibition on the prohibition on taking a business opportunity, a comprehensive and exhaustive discussion of it has not yet been held in case law (see, for example: Tel Aviv (Tel Aviv-Jaffa Economy) 29021-08-20 Tzur v. Imperial Air Ltd., paragraph 85 [Nevo] (August 6, 2023)).
- These things lead us, therefore, to the prohibition on taking a business opportunity. I will note that I have elaborated on the rules that apply in such a case more than once in the past, and I will discuss here only the main points (Talmud (Tel Aviv-Yafo Economy) 31523-06-20 Shalitel v. Rani Zim Shopping Centers Ltd. [Nevo] (October 14, 2021) (hereinafter: the Zim case); Kabub, Avraham-Gedaliah and Luxenburg).
The classification of a particular business opportunity as belonging to the company itself is "subject to a variety of considerations and characteristics, including its suitability to the company's field of activity, as well as to the terms and quality of the transaction – all in accordance with the individual circumstances of each case" (Zim, at paragraph 92). At the same time, it should be said that the definition adopted in the case law of the District Courts for the boxes "business opportunity of the company" is a broad definition, which, inter alia, does not take into account, for example, the question of the company's financial ability to exploit it (Tel-Aviv-Yafo Economy) 20136-09-12 Biton v. Pangaya Real Estate Ltd. [Nevo] (October 21, 2013); Zim, at paragraphs 88 and 92; Tzipora Cohen Company Officers – Ways to Release Them from Liability 147-148 (2023) (hereinafter: Cohen – Release); Goshen and Eckstein, at p. 257; for more on the tests established in this context, see: Kabub, Avraham-Gedalya and Luxenburg, pp. 18-23). Since the question of the belonging of the business opportunity in question to the company is not in dispute between the parties, I have not found it necessary to elaborate further on this matter.