To whom does the cause of action belong - to the company or to the minority shareholders?
- The question of classifying the causes of action, into a personal-class and derivative action, is not a simple question (see: Civil Appeal 3605/09 Sayig v. Kesselman & Kesselman Accountants ([Published in Nevo], April 4, 2011) (hereinafter: the Matter Sayig)). The rule is that a personal cause of action arises for a shareholder where he suffers personal damage independent of the company's damage. However, if the damage caused to the shareholder stems from a decrease in the value of the company and the value of its shares, and all the shareholders are equally harmed, then as a rule, the shareholder has no cause of action (the Shield and Bow). In addition to the aforementioned rule, the case law mentions a number of exceptional situations in which secondary damage, caused to the shareholder in connection with an injury to the company, may establish a personal cause of action: when a shareholder's contractual right is violated; When there is a difference between the damage caused to a particular shareholder or group of shareholders and the damage caused to other shareholders; and in situations of discrimination of minority shareholders (see: Name, p. 326(. The "need for study" also left the possibility of recognizing an additional exception that will apply in exceptional situations in which the existing means of supervision and control of risk-makers against companies do not raise sufficient deterrence, or do not create the appropriate incentive to file a derivative claim, to the extent that it would be appropriate to impose personal liability on the shareholders (The Darin, p. 695).
In his case, as will be recalled, the trial court was of the opinion that the exception to the rule applies Shield and Bow which deals with unique damage to a particular group of shareholders, and in his words: "Since the assets were purchased from the controlling shareholders of Elcinet, if damage was caused to the company, it is clear that the damage caused as a result to the public shareholders is relatively higher than the damage caused to the controlling shareholders" (paragraph 43 of the trial court's decision). The respondents argued before us that even under the assumption that in the framework of the hotel and marina transactions, assets were purchased from a subsidiary of the controlling shareholder (BEA Hotels) and a limited partnership associated with it (Herzliya Marina) at exorbitant prices, this does not justify the determination that the minority shareholders have a cause of action for a personal claim. The respondents supported the rule established in the Darin And it was implemented in Parashat Greenfeld According to which, as a rule, in cases where failed transactions executed by the company caused damage to it, the main way to repay for it is by way of a derivative action, and not by a class action by the company's shareholders. This is even when, according to the minority shareholders, the motive for executing the transaction was tainted by extraneous considerations of the controlling shareholder.
- Indeed, there are weighty reasons for attributing the cause of action to the company and not to its shareholders, foremost among them the principle of separate legal personality, which constitutes the mainstay of the existence of the capital market, and the aspiration to provide protection to the company's creditors (see: Matter Sayig, in paragraph 12). However, in the circumstances of the present case, it appears to us that the trial court's determination that the minority shareholders of Elcinet may have grounds for a personal claim in respect of the hotel and marina transactions. This is in view of the fact that these transactions were allegedly executed, not only out of extraneous considerations considered by the company's board of directors in favor of the controlling shareholder's interests, but also by injecting the proceeds for those transactions into the controlling shareholder's pocket. The transfer of wealth from the hands of society to the majority reduces the value of society and, as a result, the relative value of its minority share. Therefore, it is possible that these transactions, if they were done unfairly, caused the minority shareholders of the company, in themselves, damage worthy of compensation.
In addition, and in addition to the reasoning given by the trial court, I would like to add two reasons for recognizing the existence of a personal cause of action in the circumstances of the present case: The First Taste, which constitutes the other side of the coin for the reason mentioned above, is that the cause of action is rooted in the discrimination of the minority shareholders. If the court that will hear the main proceeding finds that there is substance to the appellants' claims that instead of distributing a dividend or executing a tender offer, the controlling shareholder has led to the emptying of the company's coffers in unfair transactions, then this is a violation of the reasonable expectation of the minority shareholders to enjoy the company's assets equally; The second reasonis the reason mentioned in the Darin regarding the lack of sufficient deterrence. In the circumstances of the present case, more than ten years have passed since the events underlying the claim occurred, and this is not due to the conduct of the appellants (as will be recalled, the delay stemmed mainly as a result of the changes that occurred in the substantive law and the need to clarify their impact on the proceeding). During these years, Elsynt merged with Elbit Imaging, so that today the possibility of clarifying the claim in a derivative action proceeding, on the face of it, is no longer feasible - and in any case it will not be able to provide a solution to the original shareholders. In addition, in this state of affairs, the approval of the class action does not harm Elsynt's potential creditors.