The parties' arguments
- According to Epstein's approach, the company's articles of association state that "the first directors of the company will be appointed by the founders," who are Epstein and Chen, and hence each of them has the vested right to appoint a director on its behalf. According to Epstein, as long as there was trust between the parties, he did not insist on this right and allowed Chen to serve as a sole director, but the latter took advantage of his position to systematically deprive Epstein. According to him, this conduct has escalated recently and found expression in the fact that Chen abused a permit given to him by the court to file a lawsuit on behalf of the company in Italy against G Brands (which will be discussed below), but he took advantage of the permit and filed the lawsuit against Epstein personally, while exploiting the company's resources. According to Epstein, the company pays Chen's private lawyers for the lawsuit in Italy. It was further claimed that Chen was taking advantage of his exclusive control of the company in order to unilaterally and inadvertently activate the company's CPA, CPA Diab (hereinafter: CPA Diab), vis-à-vis the expert appointed by the court. Epstein claimed that at his request, a special meeting was convened on August 5, 2025, but that the attempt to resolve the issue of the appointment of the director through dialogue was thwarted by Chen, in violation of the duty of fairness and good faith, with the aim of perpetuating his control of the company. It was argued that the existence of a sharp dispute between the parties strengthens the need for mutual supervision, and this supervision can be carried out by appointing two directors.
- Chen argued in his reply that the request should be rejected, and in the process referred to decisions made in the past in this case. According to Chen, the request was filed with a lack of clean hands, because he claims that Epstein stole the company's resources, took advantage of a business opportunity and caused damage to it – and his actions continue to this day. According to Chen, Epstein acted contrary to the company's interest and therefore his appointment as a director is inconsistent with the company's interest and will place him in a severe conflict of interest. It was argued that the appointment of Epstein as a director was intended to harm the company's attempts to protect its rights, prevent further investigations against him, and interfere with its ongoing operations. The appointment of Epstein as a director, it was claimed, would cause a stalemate in the board of directors and endanger the proper management of the company. It was further argued that Chen's request was inconsistent with the fact that he sent a notice to the bank where the company manages its account and announced that he was no longer a guarantor of its obligations, as well as with his conduct that should be seen as a waiver of his rights in the company. Chen further argued that the articles of association do not grant Epstein a vested right to appoint a director, because the articles of association relate to the first directors. Indeed, Chen continues, when the company was founded, Epstein was appointed as a director, but for tax reasons he asked Chen to serve as a sole director. Referring to the proceedings in Italy, Chen sought to dismiss Epstein's claim of concealment of information, claiming that he acted to protect the company's rights. Chen also asked to dismiss the claims regarding the payment to the service providers.
Decision
- The motion to order the appointment of Epstein as a director of Mazal Tov should be rejected.
- Indeed, the company's articles of association stipulate in clause 5.4 that "the first directors of the company shall be appointed by the founders". From here, Epstein wishes to learn about his "purchased" right to be appointed as a director of the company even at this time. However, clause 5.4, as it expressly states, deals with the appointment of "first directors". Indeed, from the company's articles of association submitted to the Registrar of Companies in accordance with section 8 of the Companies Law, it appears that the two – Chen and Epstein – were appointed as the first directors of the company (Appendix 1 to the answer). Epstein did not contradict this claim, and it emerges from the company's founding documents. Epstein also did not contradict Chen's claim that later, for his own considerations, he asked Chen to serve as the sole director of the company (although it was not clarified exactly when Epstein ceased to serve as a director). It should be noted that Epstein did not mention these facts in his request, and this should be attributed to his obligation. As is well known, there is no impediment to the fact that in a private company, the board of directors will include only one director (section 93(a) of the Companies Law), and there is no provision in the bylaws that stipulates otherwise in this regard. Therefore, I reject Epstein's argument that the articles of association grant him the right to be appointed as a director of the company.
- The current situation, in which the board of directors appoints only Chen, exists for an extended period of time, even before the outbreak of the dispute between the parties in 2023 and afterwards – during the period in which this proceeding is being conducted (in which the first statement of claims was filed in November 2023). However, during this period, Epstein did not seek to be appointed as a director. Moreover, Epstein has detached himself from what is happening at the company and is conducting his business abroad. There is therefore concern that Epstein's request is motivated by tactical considerations.
It should be noted that on March 20, 2024, Epstein filed a request in a similar vein for the appointment of a "managing director" on behalf of the court, in which he raised allegations regarding Chen's conduct. In my decision of April 15, 2024, I rejected the request and noted, among other things, the following: