The case law dealt with the cardinal distinction between section 280 and section 281 of the Companies Law. Thus, for example, in a case that discussed a purchase agreement signed between a couple and Hefziba, it was clarified as follows (emphasis added):
"What are the consequences of a transaction that is not valid under the clauses of Chapter Five? Section 280 of the Law states that such a transaction will be invalid, but it deals with the specific cases of a transaction between a company and its officer, or an unusual transaction with the controlling shareholder – these cases do not relate to our case. Section 281 deals with a transaction that requires approval..." (Liquidations (Jerusalem District) 2336-04-12 Mizrahi Tefahot Bank v. Official Receiver, at paragraph 11 (Nevo, January 6, 2013) ("Mizrahi Tefahot Bank")).
- In a parenthetical article, we will note that even if the conditions of section 281 of the Companies Law were fulfilled in our case, as long as Herbert did not give notice of its cancellation, and she did not notify, the lien transaction is valid and exists. Although Herbert claims that this is an invalid deal to begin with, she has never announced its cancellation.
- On the merits of the matter, section 281 establishes two cumulative conditions in the fulfillment of which the company has the right to cancel the transaction: the first condition is knowledge of the other person with whom the company entered into a personal matter; and the second condition is knowledge by force or practice of the other person of the lack of appropriate statutory approval (Mizrahi Tefahot Bank, at paragraph 11; Opening Motion (Economic) 10593-07-16 Apio Africa in Tax Appeal v. Sulliden Mining Capital Inc., at para. 60 (Nevo September 19, 2019)). In our case, the first condition is indeed fulfilled – Baruch knew very well that Segal had a personal interest in the transaction. The problem is that the second condition, according to which Baruch actually knew, or should have known, is not fulfilled, that the lien transaction did not receive the approvals required under Chapter 5 of the Companies Law (a necessary condition that applies to section 280 of the Companies Law, as aforesaid, does not apply in our case).
- The conclusive evidence that Baruch did not know and should not have known about the lack of the necessary approvals for the lien transaction is found on the bond itself. After the parties sign the bond, the confirmation of Herbert's attorney appears as follows:
"I'm Attorney Riki Shachar, who serves [sic] Herbert Ezra's lawyer in a tax appeal ("Herbert") confirms [sic: H.B.] Hereby that Herbert signed the aforementioned document through H.H. Yair Segal ID xxxxxxxxxxxx,in accordance with the decision of the Board of Directors at Herbert, which was lawfully made and in accordance with Herbert's articles of incorporation, and that the aforementioned signatures are binding on Herbert for all intents and purposes."