In other words, the company is authorized to pledge its assets, provided that this does not contradict the binding articles of incorporation, and in particular the company's articles of association. The manner in which a company's assets are encumbered is carried out by means of bonds as defined in section 1 of the Companies Ordinance, whether in series or in units. The authority to issue series of bonds is vested in the company's board of directors, while the decision to issue single bonds is generally under the authority of the company's CEO (section 289 of the Companies Law).
- Liens on a company's assets require registration in order for them to be valid against the trustee and the company's creditors (section 178(a) of the Companies Ordinance). Even if the lien is found to be void, this will not prejudice the obligation to return the funds secured in the lien (section 178(c) of the Companies Ordinance). Once the lien is registered, the Registrar of Companies issues a certificate of registration of a lien or mortgage, and the certificate will be conclusive evidence that all the requirements regarding registration have been fulfilled (section 185(a) of the Companies Ordinance). However, the aforementioned conclusive evidence is concerned only with the fulfillment of the requirements relating to registration in the register, and is not concerned with the content and validity of the lien itself (Civil Appeal 261/88 United Mizrahi Bank v. Rozovsky, IsrSC 48(2) 102, 137-138 (1994)).
- When the obligation is not fulfilled on time, the creditor is entitled to realize the pledge (section 16 of the Pledge Law). As stated, in our case, according to the terms of the bond, the dates for repayment of the debt (June 18, 2023 and June 30, 2023) have long since passed. The enforcement of a permanent lien registered on the company's assets (as opposed to a floating lien) will usually be carried out through the Execution Office (section 17(2) of the Pledge Law), but given the expectation of possible complexity in the realization process, the lien holder has the choice to file the application for realization in the District Court, as was done in our case (see my decision in this proceeding of December 10, 2024).
- In the present case, Herbert argues that the lien that is the subject of the application was made unlawfully and is invalid. Herbert's argument is based on two main channels, one from Herbert's point of view (the pledged company) and the other from the point of view of Souda (the company whose shares were pledged), in connection with the pledge transaction, i.e., the signing of the bond and its submission to the Registrar of Companies and the creation of the lien. The arguments are to be dismissed, for the reasons that will be detailed now.
- In view of the lien transaction from Herbert's point of view, it was argued that the transaction in which the lien was created was made in contravention of the provisions of Chapter V of Part VI of the Companies Law, because the necessary approvals were not received for the execution of an unusual transaction in which Segal has a personal interest.
- The chapter dealing with the approval of transactions with interested parties is one of the most important arrangements in the Companies Law, and it is based on two main principles: the first principle subjects the validity of the transaction to the approval of an independent organ, which is not affected by the conflict of interest of the interested party; the second principle establishes different levels of certain procedural requirements that vary according to the type of transaction on the agenda and according to the intensity of the concern about the conflict of interest in which the interested party finds himself (Zohar Goshen and Assaf Eckstein Corporate Law 347 (2023)) ("Goshen & Eckstein").
- In our case, Herbert referred to sections 270(1) and 272(a)-(b) of the Companies Law, the relevant parts of which provide as follows:
"270. Transactions of a company listed below require approvals as set forth in this chapter, provided that the transaction is for the benefit of the company: