(1) A transaction of a company with an officer thereof, as well as a transaction of a company with another person in which an officer of the company has a personal interest; ...
- (a) A transaction of a company in which the provisions of section 270(1) are fulfilled and are an exceptional transaction, or a transaction of a private company that is not a bond company in which the provisions of section 270(2) are fulfilled, requires the approval of the audit committee and then the approval of the board of directors.
(b) If a private company that is not a bond company did not have an audit committee, the transaction requires the approval of the board of directors only if the officer is not a director, and if the officer is a director, the approval of the general meeting as well."
- The transaction relevant to our case is the creation of the lien by way of the bond signed by Herbert and Segal on the one hand and Baruch on the other hand on June 25, 2023. This was preceded by Baruch and Segal's engagement in the third addendum dated June 8, 2023, one of the conditions of which was the pledge of Herbert's shares in Souda (ibid., in section 1.2). We are therefore dealing with a transaction of the type mentioned at the end of section 270 of the Companies Law, i.e., a transaction of a company (Herbert) with another person (Baruch) in which an officer of the company (Segal, who is a director and CEO) has a personal interest. The term "personal interest" has been defined in the Companies Law (Section 1 of the Companies Law; Goshen and Eckstein, at p. 337), but in this case it is clear that Segal's personal interest is expressed in his desire to repay his personal debt (which is not Herbert's) to Baruch.
- The parties disagreed on the question of whether or not the lien transaction constitutes an "exceptional transaction" as defined in the Companies Law . An unusual transaction is a transaction that is not in the ordinary course of business of the company, a transaction that is not in market conditions, or a transaction that is likely to materially affect the company's profitability, property or liabilities (section 1 of the Companies Law). If the transaction is not unusual, then it requires the approval of the board of directors only (section 271 of the law). Insofar as it is unusual, it additionally requires the approval of the General Meeting in accordance with section 272 above (since Herbert is a private company without an audit committee, and Segal is its sole director). I have not been presented with sufficient evidence to decide one way or the other on the question of the classification of the transaction, but it is possible to assume that the pledge of the assets of a company to secure the debt of the controlling shareholder is not an act that occurs on a daily basis and in any case has the power to significantly affect the company's situation.
- There is no factual dispute that the general meeting of Herbert's shareholders did not convene on the eve of the lien transaction. Therefore, all the required approvals under Chapter V of the Companies Law have not been obtained. In addition to Segal, there is another shareholder in the company: Mr. Nissim Maor Cohen ("Cohen"). According to Herbert's company statement dated August 11, 2024 (Appendix 1 to the application), Segal is the majority shareholder who holds 88 ordinary shares and another 158 ordinary shares B, while Cohen holds 12 ordinary shares and 48 ordinary shares of type B. Cohen was not summoned to testify as one might expect from Herbert, and his position regarding the lien transaction was never clarified. Herbert argued that the lien transaction was invalid and referred to section 280 of the Companies Law, according to which:
“)a) A transaction of a company with an officer thereof or a transaction as stated in section 270(4) and (4a) with a controlling shareholder thereof shall not be valid against the company and against the officer or controlling shareholder, if the transaction was not approved in accordance with the provisions of this chapter, including if there was a material defect in the approval process, or if the transaction was made in a material deviation from the approval.