discussion
- The application in question was filed by virtue of Section 198A to the Companies Law, which enshrines the court's authority to order the disclosure of documents relating to the procedure for approving a derivative claim. The section instructs that:
"198A. (a) A person who is entitled to file a derivative claim under section 197 may request the court, before or after the filing of the application for approval of the claim, to instruct the company to disclose documents relating to the procedure for approving the derivative claim.
(b) The court may approve an application as stated in subsection (a) if it is satisfied that the applicant has provided a preliminary evidentiary basis as to the existence of the conditions for approving the derivative claim listed in section 198(a)."
Section 198A therefore establishes a unique arrangement in which the court may order the disclosure of documents relating to the process of approving a derivative claim, even before the application for certification itself is filed.
- The main purpose of Section 198A It is to assist the applicant in bridging the built-in information gaps that often exist between the applicant and the company. The proceeding allows the applicant, who has limited information about the conduct of the company and the potential defendants, to try to obtain additional information that will enable him to submit a "complete" and complete application for approval (or to see, in light of a review of the documents that will be given to him, that he does not have a cause of action, and then no unnecessary request for approval will be submitted). Thus, the process of disclosure of documents is intended according to Section 198A To increase the efficiency of the derivative claim tool, which has an important role in enforcing the rights of the company (see Civil Appeal 3487/16 Yifat v. Bank Leumi Le-Israel, [Published in Nevo] Verse 14 (September 6, 2016) (hereinafter: "The Yifat Matter"); LCA 2903/13 Intercolony Investments Ltd. v. Shkedi, [Published in Nevo] Verse 58 (27.8.2014); bad"A 7327/16 Barak N' Gazit-Globe Ltd."From [Posted inNevo] (6.12.2016) (Below: "The Gazit-Globe Matter")).
Therefore, the burden imposed on an applicant in an application for discovery of documents under section 198A is a lower burden than that imposed on him at the stage of the application for approval (see the Yifat case, para. 16; R.A.A. Rebecca Technologies Ltd. v. Israel Chemicals Company Ltd., [published in Nevo] at paragraph 10 (October 11, 2018) (hereinafter: "Rebecca Technologies").
- In case law, it has been held more than once that the applicant should not be overly careful with the disclosure of documents according to the Section 198A and that the court must grant the request for disclosure of documents generously, as long as it is convinced that there is substance to the claim that it is not a frivolous claim, and that it is managed for the benefit of the company and in good faith in substance (see The Rebecca Technologies Matter in paragraph 20).
At the same time, the importance of the disclosure of the documents under section 198A must be weighed against the concern of frivolous claims or claims that are not in the interest of the company, and against the obligation of a company – including companies that have no cause of action against their officers – to disclose documents beyond those to which a shareholder is entitled as such. Recently, in a decision in Civil Appeal (Economic) 44096-04-19 Tal Benenson v. Teva Pharmaceutical Industries Ltd. [published in Nevo] (November 3, 2019), I noted (in paragraph 15) in this context that: