Section 154(b) of the Companies Law states that "an auditor shall be appointed at each annual meeting and shall serve in his position until the end of the following annual meeting; However, a general meeting may, if a provision is made for this in the Articles of Association, appoint an auditor who will serve in his position for a longer period, which will not extend beyond the end of the third annual meeting following the one in which he was appointed" (and in a private company, the same applies to the appointment of a first accountant, see section 155(b) of the Companies Law). Epstein argues that an accountant must be reappointed every year, but Section 5.1 of the Regulations, the beginning of which is cited above, further states that "... An auditor of the company may be appointed for a period not longer than the end of the third annual meeting following the one in which he was appointed." On this issue as well, Epstein ignored clause 5.1 of the bylaws, and the request did not include any argument as to the significance of the words in the circumstances of the case before us.
In the midst of the matter, the appointment of CPA Diab was, as stated, at the general meeting held on January 25, 2021, and therefore the company was entitled to determine that the appointment is "until the end of the third annual meeting following the one in which he was appointed", i.e., until January 25, 2024. Admittedly, in the decision in which CPA Diab was appointed, the period in which he would serve as CPA was not determined, but on the other hand, the appointment period was not limited to one year. I am of the opinion that the conduct of the parties shows that their intention was not to appoint an accountant every year, because both before and after the outbreak of the dispute between them, they did not see the convening of a general meeting for the purpose of discussing the continued employment of CPA Diab or his replacement with another.
In many cases, in an era of peace, small private companies or "quasi-partnership" companies do not conduct themselves according to all the nuances of the provisions of the Companies Law , and the parties adopt conduct that is not anchored in the authors. However, Epstein did not raise any claim that he demanded a discussion on the employment of an accountant, neither in the period before or after the outbreak of the dispute (until July 2025, as will be clarified below), which indicates his agreement to continue employing CPA Diab even beyond a year. This is despite the fact that this issue of examining the company's financial situation, in general, has also come up. Thus, even in a request for a temporary injunction initiated by this proceeding, Epstein complained that prior to the filing of the lawsuit, in addition to the auditing accountant, the company had appointed an additional accountant (CPA Toledano) to examine irregularities in the company (see the decision of December 13, 2023 for more information).
- As appears from Epstein's request, the first time he contacted CPA Diab was on July 15, 2025 (Appendix 7 to the application). Following Epstein's demand, a general meeting was held on August 5, 2025, which included the appointment of an auditor to the company, and Epstein even proposed three names of CPAs. As expected, due to the dispute between the parties, the meeting was closed without a decision.
- It is no secret that there is a dispute between the parties, which intensifies as the legal process progresses. On the other hand, the relationship at the general meeting is balanced, given that Epstein and Chen hold the company's shares at an equal rate. It is clear that this state of affairs is liable to lead to the paralysis of the general meeting, and it seems that the meeting that took place on August 5, 2025 proves this and predicts the future (and see Epstein's remarks during the meeting, p. 23 of the appendices to the motion).
- From the provisions of the law and the circumstances detailed above, it appears that the appointment of CPA Diab was for three years. A review of the minutes of the meeting of August 4, 2025 shows that the appointment of an auditor or the continuation of the employment of CPA Diab was not discussed in an exhaustive manner. Therefore, I order that a general meeting be held within 30 days from today, at which one issue will be on the agenda – the continued employment of CPA Diab or the appointment of another CPA in his place. As noted, in light of the dispute between the parties, there is a well-founded concern that the general meeting will not yield an agreement. If this scenario does materialize, the court's intervention will be necessary in order to prevent harm to the company and enable its proper functioning. Therefore, after the general meeting is held, the parties will submit an appropriate notice to the court and the court will rule on the issue.
- Epstein claims that CPA Diab is "tainted by total dependence on the defendant" and is in a conflict of interest – and we will deal with this argument below.
- Section 160 of the Companies Law establishes the rule of independence of the auditor's accountant, according to which "the auditing accountant shall be independent of the company, whether directly or indirectly". A similar and even broader principle is set forth in section 10(a) of the Accountants Law, according to which "an accountant shall not engage in any other occupation in circumstances in which a conflict of interest may arise between his occupation as an accountant and the other occupation, or his independence as an accountant may beharmed." Independence is an important principle for the functioning of the auditor, and it can be said that this principle is the foundation on which the accounting profession is built, because "the auditor's report, in which the accountant expresses his opinion that the company's balance sheet and financial statements correctly reflect its financial situation, serves as a reliable source on which the company, its shareholders, creditors, potential investors, tax authorities and others rely" (Abi (Jerusalem) 17253-12-22 State of Israel v. Ofer Manirav, CPA, paragraph 22 [Nevo] (May 22, 2023); Gross, Companies Law 758 (2016)).
- As mentioned, I decided to reject Epstein's claims. Epstein's claims were made in general without anchoring them in a sufficient evidentiary and legal basis. Epstein refers to a number of regulations that regulate the practice of accountants, including the Accountants Regulations (Method of Operation of an Accountant), 5733-1973, the Accountants Regulations (Conduct Inappropriate to the Dignity of the Profession), 5725-1965, and the Accountants Regulations (Conflict of Interest and Injury of Independence as a Result of Another Occupation), 5768-2008 (hereinafter: the Accountants Regulations, Conflict of Interest), but his references are very general. Thus, for the sake of illustration only, Epstein does not claim that the circumstances of the case fall into one or more of the circumstances set forth in the Conflict of Interest Accountants Regulations, which establish a presumption of dependence or conflict of interest (see Regulations 2-4). Moreover, it can be expected that in the context of the duties imposed on the accountants, Epstein will turn to the relevant institutions that regulate the practice of accountants, as he did in the matter of legal representation for the company (and more on this later), but it was not claimed that this was done.
- Epstein believes that there is a conflict of interest in the fact that CPA Diab serves both as the company's auditor and as the company's "ongoing" accountant, while at the same time providing professional services to Genta and serving as an "officer" in both companies.
I previously addressed the claim regarding the appointment of CPA Diab as an auditor. Chen claimed in his reply that CPA Diab serves only as an auditing accountant, while the company's bookkeeping is performed by an external party (paragraph 27 of the reply). This argument has not been contradicted, and there is even evidence to support it and point to Epstein's knowledge of this state of affairs (Appendices 3-5 to Chen's response). As for the role of the accountant at Genta, Epstein did not lay a basis for his claim that CPA Diab "provides various professional services" to Genta. There was not even a prima facie evidence that the accountant was providing Genta with services beyond audit services. Beyond what is required, we note that a review of the Conflict of Interest Accountants Regulations shows that in cases under certain restrictions, it is possible to provide bookkeeping services in the same firm in which the auditing accountant operates (see Regulation 3(12), (13), 4). Finally, there is no basis for Epstein's general claim that the accountant "works for the defendant privately with a salary" (paragraph 8 of the motion). Not only was no evidentiary basis laid for this claim, but the circumstances related to the said employment as alleged by Epstein were not clarified.