Even if we assume that Baruch had personal knowledge of Cohen's very existence as an additional shareholder in Herbert as early as April 2023 (according to what was stated in his affidavit in the previous proceeding), this does not place Baruch under the presumption of knowing about the lack of approval of the general meeting for the purpose of the lien transaction. In any event, it is inappropriate for the CEO, the director and the controlling shareholder of a particular private company (and in our case, Segal) to impose on the entity with which he engages in the transaction the burden of ensuring that all the approvals required by law to enter into the transaction have been received (given that the information is not in the hands of the other party but in the hands of the controlling shareholder), only so that the controlling shareholder can afterwards evade fulfilling the obligation that he undertook through the company under his control. Especially after presenting the other party with a certificate from the company's lawyer, according to which the company is authorized to enter into a transaction after it has received the necessary procedural approvals. In this context, it is appropriate to say what was said in Other Municipality Applications 7594/16 Adv. Yitzhak Molcho, Special Manager v. Mizrahi Tefahot Bank Ltd., at paragraph 47 (Nevo, March 25, 2021) ("Hefziba"):
"In circumstances in which it was clear to Mizrahi Bank and Discount Bank that Mordechai Yona was behind each of the three transactions in question, in any case the conditions set out in section 281 of the Companies Law, which grants the company the right to cancel an interested party transaction vis-à-vis a third party with whom it has contracted, are not met;In particular, the condition that subjects the right of cancellation to the fact that the third party knew or should have known that the transaction was not approved in accordance with the mechanism set forth in the law is not met. We have already noted that Mordechai Yona was not only the publisher and importer on behalf of the companies (together with his son, Boaz Yona), but also the owner of them (together with his wife, Hefziba Yona); Given the aforesaid, it is clear that at the time of the engagement with him, the banks had no basis to believe that the transactions were not approved as required by law – since Mordechai Yona held the decision-making power in both the board of directors and the general meeting, both of Heftziba Investments and of Heftziba Engineering [...] This is further validated when in the documents of each of the transactions explicit written approval was given by attorneys on behalf of the guarantor companies (Hefziba Investments and Heftziba Engineering, as the case may be) – according to which the transaction was approved by the company as required by law." (emphases are not in the original)
- In any event, in the present case, there is no material significance to the strict insistence on the existence of the mechanism in section 272 of the Companies Law as written and worded, because, as stated, Segal is de facto the controlling shareholder of Herbert, according to which the matter will be issued. In contrast, for example, to transactions with the controlling shareholder in public companies, which require the approval of an untouched majority of the shareholders (section 275 of the Companies Law), in our case we are dealing with a private company (which is not a bond company) in which decisions are generally made according to a regular majority. In fact, even if the general meeting had convened, it would have approved Herbert's engagement in the bond, since the living spirit behind the transaction was a staff that held an absolute majority of the shares in Herbert. In other words, Herbert and Segal are the same with regard to the interest that was behind the engagement in the lien transaction with Baruch, and therefore it is clear that a general meeting, had it been convened, would have approved the engagement. In this context, too, the words brought in the matter of Hefzibah above are relevant to our purposes (although there we are talking about other circumstances):
"... I have discussed at length above that the purpose of the approval procedure for transactions of interested parties set forth in the Companies Law, is that transactions of this type will be approved by an organ of the company that is free of conflict of interest and on the basis of full disclosure. In the circumstances of the present case, and in view of the holding structure and management of the companies in the Hefzibah Group, it is clear that with regard to back-to-back transactions and engineering transactions, approval from an independent organ would not have been achievable in any case – even if the approval mechanism had been carried out as written. Heftziba Investments and Heftziba Engineering are, as stated, private companies that do not have an audit committee – and therefore, according to Section 272 of the Law, they must ostensibly obtain dual approval for the transactions of interested parties, from the board of directors and the general meeting. However, as clarified, Mordechai Yona and Boaz Yona served as sole directors of Heftziba Investments, and Mordechai Yona was a sole director of Heftziba Engineering, and also held the majority of the shares of both companies and held the position of Chairman of the General Assembly in both companies. In other words, Mordechai Yona is the manager of the companies, he is the board of directors and he is also the shareholders' meeting; and there is no independent entity." (ibid., at para. 43) (emphases not in the original)
- In view of the above, the failure to obtain the approval of the general meeting in our case does not detract from Herbert's obligation under the bond and the validity of the lien that was registered in favor of Baruch.
- In view of the lien transaction as far as Sauda was concerned, Herbert argued that the lien was invalid because the transaction contravened the provisions of Sauda's articles of association and the provisions of its shareholders' agreement. It should be noted that in the previous proceeding, Baruch's original request was also directed against Souda (along with Herbert and Segal). In his summary, Baruch argued that Herbert and Segal had no standing to raise claims on behalf of Souda and that only she could raise the claim in connection with the approvals required by her for the purpose of the lien transaction.
This argument of Baruch is based on the law. The one who was entitled to make this argument was Sauda, not Herbert. This is enough to dismiss Herbert's argument out of hand.