Civil Case (Tel Aviv) 36962-05-23 Haim Tzuf v. Daniel Cohen

30.12.2024

Judgment

Two motions for a rehearing in the decision of the Honorable Judge M.  Altuvia in derivative claim 31850-12-18 Cohen v.  Equitel in Tax Appeal [Nevo] dated March 5, 2023.  The decision granted the respondent's request to certify a derivative claim on behalf of a public company against the controlling shareholder and its officers, due to a breach of their various obligations at the time of a merger with its subsidiary.

Factual Background

1. Equitel in a Tax Appeal (hereinafter: "Equitel" or the "Company") (the Applicant in Civil Case 37864-05-23), [Nevo], is a public company registered in Israel and its shares are traded on the Tel Aviv Stock Exchange. Its controlling shareholder is Y.H.K.  Investments - Limited Partnership (hereinafter: "Yahak").  Yachak is controlled by Mr. Haim Tzuf (hereinafter: "Tzuf" or "the controlling shareholder").  Equitel is a holding company whose holdings at the time of the proceeding included the shares of Y.O.A.L.  Jerusalem Oil Exploration in a tax appeal (hereinafter: "Yoel"), a public company whose shares were then traded on the Tel Aviv Stock Exchange.  Yoel's occupation is in the field of income-producing real estate, residential construction, oil and gas.  Yoel was the controlling shareholder of two public companies, Nafta in a tax appeal (hereinafter: "Nafta") and Airport City in a tax appeal (hereinafter: "Airport").  As part of the merger at the center of the approval request, Yoel was delisted from trading on the stock exchange and became a private company wholly owned by Equitel.
2. Tzuf (Applicant 1 in Civil Case 36962-05-23) [Nevo] served on the relevant dates as Chairman of the Board of Directors of Equitel and Yoel, Applicant 2 served as a director of Equitel, Applicant 3 served as the CEO of the Company, Applicant 4 served as an independent director, and Applicants 5-6 served as external directors.
3. The Law for the Promotion of Competition and the Reduction of Concentration, 5774-2013 (hereinafter: the "Concentration Law") prohibited the existence of a "pyramidal" holding structure that includes more than two tiers of reporting corporations, as of the end of 2019. As can be seen from the aforementioned description, Equitel was at the top of a pyramid of three tiers of reporting corporations (Equitel itself, which controls Yoel, which in turn controls Nafta, and Airport, all of which are public).  Therefore, it was necessary to reduce the structure of the pyramid to include only two layers.
4. At the end of 2016, Equitel began holding discussions regarding the manner in which the provisions of the Concentration Law should be complied with. Among other things, the company examined the possibility of issuing its shares on the NASDAQ stock exchange in New York and being delisted from trading in Israel: this is because if it ceased to be a "reporting corporation" in accordance with the Securities Law, 5728-1968, it would also cease to be a "tier company" as defined in the Concentration Law.  As part of the discussions on this alternative (hereinafter: the "NASDAQ Alternative"), the Company invited a legal opinion by Prof.  Uriel Procaccia (hereinafter: the "Procaccia Opinion").    Procaccia expressed his opinion in Gedera, inter alia, that "Mr. Haim Tzuf, the controlling shareholder of the company, has a 'personal interest' in approving the outline examined in this opinion" (paragraph 50 of Procaccia's opinion).
5. According to Equitel, the Nasdaq alternative was ultimately rejected in light of the opposition of institutional investors among the company's minority shareholders. Subsequently, in late 2017, the Company's Board of Directors decided to examine an alternative to a reverse triangular merger with Yoel (hereinafter: the "Merger Transaction" or the "Transaction").  Upon the introduction of this outline, Tzuf informed the Board of Directors that Yachak would not support a merger that would lead to the dilution of its voting rights below 45% (hereinafter: the "45% Condition").  This is in order to avoid the need to make a tender offer by virtue of Section 328 of the Companies Law, 5759-1999 (hereinafter: the "Companies Law" or the "Law"), if it wants to rise again in the future above the holding threshold of 45%.
6. In order to examine the merger transaction, the company commissioned an additional legal opinion, this time on behalf of Prof. Assaf Hamdani (hereinafter: "Hamdani's opinion"), in which he expressed his opinion, inter alia, that the issuance of the rights following the merger transaction and the choice of how to deal with the Concentration Law are not transactions in which the controlling shareholder has a personal interest, and therefore the company's board of directors is entitled (and perhaps even obligated) to consider, inter alia, the interest of the controlling shareholder not to be diluted below 45%.  In addition, it was noted that "in and of itself, the fact that the merger transaction - or any other outline that will be decided upon - is intended to deal with the provisions of the Concentration Law does not make the controlling shareholder of the company a personal interest under section 270(4) of the Companies Law in a Merger Transaction or in any other outline" (section 65(c) of the Hamdani opinion).
7. On January 17, 2018, and even before the merger transaction was approved and executed, the controlling shareholder made a partial tender offer for the company's shares, which led to an increase in the percentage of his holdings in Equitel to 72.79% of its voting rights. According to him, this was done in order to allow the company room to maneuver in the negotiations and in determining the compensation component for Yoel's shareholders.
8. Later on, and as the negotiations to formulate the terms of the merger deal progress, Tzuf announced that Yahak is willing to withdraw from the 45% conditions, as long as this limitation in the issuance of shares leads to a significant debt raising requirement and high leverage. Accordingly, at the end of negotiations with an independent committee established in Yoel, on December 13, 2018, the merger transaction was approved by the Board of Directors and the Audit Committee with a combined component of cash and shares.  The deal diluted Equitel's shareholders' holdings, including the dilution of Yahak's voting rights to 36.2%.

Summary of the Request to Approve a Derivative Claim

9. On the day of the approval of the merger transaction, Mr. Daniel Cohen, who is the respondent in the two proceedings before us, filed an application for approval of a derivative claim, by virtue of the provision of section 198 of the Companies Law. The Respondent, a public shareholder in Equitel, petitioned for approval of a claim on behalf of the Company against the controlling shareholder and its officers, for compensation for the excess payment that the company had paid, according to him, as part of the merger transaction.  In summary, the Respondent argued that the choice of the alternative to the merger transaction and the manner in which the transaction was executed, while giving preference to the interests of Yahak and Tzuf, caused damage to Equitel and its shareholders and even enriched the controlling shareholder at the expense of the company and the other shareholders.
10. The Respondent argued in the motion for approval, inter alia, that Tzuf should have a "personal interest" as defined in section 1 of the Companies Law, both because of his desire not to be diluted in the framework of the merger transaction, and as to the manner of compliance with the Concentration Law, as learned in the Procaccia Opinion. Tzuf's personal interest requires that the merger transaction be approved at the general meeting by the required majority of the minority shareholders, as part of the tripartite approval mechanism set forth in the Companies Law, which did not happen.
11. According to the respondent, in view of what was stated in Procaccia's opinion, Tzuf should have refrained from discussions and votes on the subject that are being conducted in the audit committee and the board of directors, in accordance with section 278(a) of the Companies Law. Despite this, Tzuf participated in some of the discussions relevant to the transaction and a year later ordered another opinion that would qualify it, this time on behalf of Prof.  Assaf Hamdani.
12. The respondent further argued that even when Tzuf removed his requirement not to be diluted below 45%, he demanded and acted to reduce the scope of the dilution as much as possible. This, in turn, led to an increase in the cash component of the merger transaction, which led to an excess premium on Yoel's shares and to the costs of raising cash for the company.  These constitute the damage underlying the application for approval, and are supported by the expert opinion on behalf of the applicant, Mr. Gilad Manu (hereinafter: "Mano Opinion").  In addition, the opinion of Mano revealed that the controlling shareholder had a substantial benefit from the outline of the transaction that prevented its full dilution.  The controlling shareholder attributed great economic weight to this benefit, as is evident from the fact that Tzuf executed transactions for the purchase of the company's shares close to the date of the merger transaction, at a price that exceeded the value of the company's shares.
13. The Respondent further argued that the officers should have considered the best interests of the company only as part of their fiduciary duty, but the members of the board of directors were dissolved before the controlling shareholder, dissolved from their independent judgment and subjected themselves to the controlling shareholder's discretion and his demand that the share of his holdings not fall below 45%. Accordingly, they did not remove him from his position as chairman of the board of directors regarding decisions relating to these issues, despite his personal interest in them, did not conduct negotiations with him in order to reach a good result for the company, and did not raise alternatives that contradict his demands.
14. In the application for approval, it was argued that the respondents there (the applicants before us) are not entitled to protection by virtue of the business judgment rule, in accordance with the ruling of other municipal applications 7735/14 Radnikov Elovitch (Nevo 28.12.2016) (hereinafter: "the Radnikov case").  This is due to the concern that the controlling shareholder will have a significant influence on the company's decision-making process and due to the directors' refusal to exercise independent judgment.  It was further argued in the application for approval that the duty of full fairness should be applied to the applicants and that the burden of proving that the chosen mix was optimal for the company, both in terms of decision-making and in the economic aspect - a burden that the applicants failed to meet.
15. Finally, it was argued in the motion to certify that once the foundations of the cause of breach of fiduciary, the cause of deprivation and the lawful non-approval of the merger transaction have been proven, the derivative claim should be approved "even if the damage was not proven". It was further argued that after proving the unlawful enrichment at the prima facie stage of the application for approval, it must be determined that the grounds for recklessly breach of the duty of care, breach of the duty of good faith, and breach of the duty of fairness also exist.

Summary of the Respondents' Arguments in Their Response to the Motion for Certification

16. Equitel and Yoel jointly submitted their response to the request for approval, and so did the officers. In their responses to the request for approval, it was argued, inter alia, that there is no reason at all to view the choice of the alternative to compliance with the Concentration Law as a "transaction", and certainly not as one that gives rise to a "personal interest"; that there was no flaw in the outline chosen and in the manner in which it was approved; and that it was not necessary to activate the 'triple approval' mechanism.  It was also claimed that the controlling shareholder agreed to waive a legitimate proprietary right that gives him control, i.e., the percentage of his holdings in the company, out of consideration for the company, and that none of the officers violated any duty and did not subject his discretion to Tzuf's terms, especially since at the end of the day Tzuf waived the 45% conditions.
17. The Applicants further mentioned that even when triple approval is required, a majority of all shareholders is required, and in any case Tzuf's consent was required, in light of the size of his holdings in the company. It was further argued that a personal interest cannot be attributed to Tzuf in determining the manner of financing that the company adopts, otherwise any acquisition or action that requires financing will be considered as establishing a 'personal interest', and in fact this will lead to the result that the minority is the one who makes decisions on routine matters that constitute the core of the company's business.
18. The Applicants referred to the discussions of the Concentration Bill, which indicate that the legislature sought to avoid extortion by shareholders in light of the need to comply with the provisions of the Law, and therefore the controlling shareholder was given the ability to influence in determining the manner of compliance. In this regard, the Applicants wish to build understandings in the matter of Clal Industries (Civil Case (Economic-Tel Aviv) 3347-12-14 Clal Industries in a Tax Appeal v.  Strauss, Lazar Trust Company (1992) in a Tax Appeal (Nevo 28.12.2014)).
19. The Applicants further claimed that the alternative that was chosen at the end of the day was approved after many discussions in the Board of Directors, in consultation with a series of experts, and in the course of conducting negotiations with a committee independent of Yoel; and that the board of directors did not subject its discretion, but chose the best viable alternative available to it, after the Nasdaq alternative was taken off the agenda, due to the opposition of institutional investors.
20. According to the applicants, Tzuf's participation in the discussions on the selection of the outline was done in accordance with the law. In this regard, the Applicants emphasized that Procaccia's opinion determined that Tzuf had a personal interest in the Nasdaq alternative, and that he indeed refrained from participating in discussions on this alternative, but there is no sweeping determination that he has a personal interest in choosing the manner of compliance with the Concentration Law broadly.  The Applicants also wished to emphasize that after Tzuf removed the 45% condition, he did not set any other condition regarding the dilution.  The Applicants further argued that Tzuf did not derive a personal benefit from the transaction, which was successful for the company, and in any case is protected by virtue of the business judgment rule.

The main points of the approval decision

21. In the approval decision, it was determined that the definition of the term "personal interest" in the Companies Law does not contain an interpretation or explanation of the essence of the term, and that the legislature chose to define it without a concrete interpretation in order to allow the court to pour content into it according to the circumstances of the case and the purpose of the relevant provisions of the law. It was also held that in such "gray" cases, the legislature made a moral choice regarding taking extra caution whenever doubt arises, in order to provide broader protection to the minority shareholders, and in the words of the court: "In the event of doubt, there is no doubt" (ibid., at paragraph 10).  In the approval decision, the case was diagnosed in the Vardnikov case, where it was determined that a shareholder's interest in distributing a dividend stems from the very holding of his shares in the company (ibid., at paragraph 33), on the grounds that this is not true with regard to changing the percentage of a shareholder's holdings in the company, or an action to preserve his controlling power, which does not "derive" or "derive" from the holding of the share.
22. In addition, it was determined that Tzuf's actions - the restrictions he initially imposed and his actions to increase his holdings in the company prior to the selection of the compliance mechanism - prove the substantial interest he had in maintaining his power as a controlling shareholder and preventing its dilution, as well as in choosing the outline of compliance with the Concentration Law, and clearly amount to a "significant excess personal connection", to the point that there was no need to require the tests set out in the case law to identify it.
23. The approval decision also criticized the respondents there (and the applicants here) for summoning the greedy opinion in a matter that was ostensibly decided in the Procaccia opinion, while insisting that there is a concern that this move was carried out because the Procaccia opinion in fact harmed the controlling shareholder and determined that Tzuf has a personal interest in the very selection of the outline for meeting the requirements of the Concentration Law.
24. In the approval decision, the court referred to the opinion of Mano in which it was determined that the merger with Yoel turned the absorbing company into a different economic entity and with a much larger value than the company before the merger. Therefore, it was ruled that maintaining the share of Tzuf's shares or maintaining the controlling power that he had in the company without proper consideration, constitutes a significant benefit to which he is not entitled, and it may even contradict the purpose of the Concentration Law.  The approval decision recalled the words of the company's economic advisor, Mr. Vadim Portnoy, at one of the meetings of the board of directors:

"There are actually two options here: one option is the purchase of the public shares by Equitel, which is a type of buyout/merger offer, and the other option is the purchase of the public shares by Yoel herself, i.e., a buyback.  In both alternatives, we estimate the scope of the required resources at about 1.9.  ILS 1 billion (...) Assuming that the controlling shareholder insists on maintaining a certain percentage of his holdings, most of the proceeds of the merger will be in cash, and in fact the transaction will be very similar to the alternative of the purchase of public shares by Equitel.  It can be seen that if the controlling shareholder is willing to drop to 40% of the holding, which he is not willing to do because he wants to remain at least a holding rate of at least 45%, he would have saved about ILS 300 million out of the ILS 1.9 billion."

25. Further to these words, the court referred in its approval decision to what was claimed in the expert opinion on behalf of the applicants, Prof. Aharon (Roni) Ofer (hereinafter: the "Ofer Opinion").  It was held that Prof.  Ofer's argument regarding the absence of a conflict of interest between the controlling shareholder and the minority is irrelevant, since it relates to the rights of the shareholders in the company and not to the rights of the company and is not required for a decision.  In addition, the argument in the Ofer opinion regarding the non-existence of a "significant difference" between the combined share and cash transaction that was actually executed, in which Yahak was diluted to 36.2%, and a share transaction only, in which it was diluted to 32.2% (and which, ostensibly, according to the applicant there, would have reduced financing costs for Equitel and prevented damage to the company).
26. The court accepted the applicants' argument that the Concentration Law should not be interpreted as imposing an additional duty on the controlling shareholders to examine the path that is least harmful to the bondholders and to act in this way even if it is not the best for the company, based on the Clal Industries case, inter alia. However, it was held that this does not help the Applicants (the Respondents therein) since the officers of the Company, including the controlling shareholder of the Company who serves as an officer of the Company, are obligated to consider only the best interests of the Company.
27. In the approval decision, the applicants' argument that the fact that Tzuf ultimately waived his demand not to be diluted below the 45% threshold was sufficient to lead to the rejection of the application for approval. Thus, their arguments that their waiver of this demand ultimately gave them a tactical advantage in the negotiations with Yoel were rejected.  In this regard, it was determined that at the stage of approving the application, it was sufficient that Tzuf allegedly breached the fiduciary duty while he was present in some of the discussions in which he had a personal interest, and in violation of the tripartite approval arrangement with regard to the approval and execution of the merger transaction.  It was also determined that the negotiations with Yoel progressed only after Tzuf withdrew from the 45% condition, in a way that should indicate that the board of directors allegedly subordinated its discretion to the interest of the controlling shareholder.
28. With regard to the claim of damage, it was noted that even if Yoel insisted on the existence of a cash component in the transaction, as claimed by the Applicants, he does not rule out the existence of damage in the form of payment of an excess premium from Equitel's pockets. With regard to the Applicants' argument that such a judicial determination will lead to broad harmful effects on transactions in the market, it was noted that this argument should be clarified in the main proceeding.
29. In view of the above, the court approved the filing of the derivative claim on grounds of breach of trust, breach of duty of care and breach of the duty of good faith regarding the manner in which the company made decisions to enter into the merger transaction and the manner in which the terms of the merger transaction were determined. With regard to the remedy that will be claimed, it was determined that in light of the provisions of the Concentration Law, and once the merger with Yoel was executed and completed, the remedy concerned with compensation for the damage caused to the company as a result of the execution of the merger transaction in the manner in which it was executed, should be addressed.

The motions for a rehearing and a summary of the parties' arguments

30. In the matter of the approval decision, two motions for a rehearing were filed: one, as stated, was filed by Equitel and Yoel and the other by the officers. The hearing of the two motions was consolidated; The parties filed pleadings and oral arguments before the panel on May 19, 2024.  At their request, the parties submitted a supplementary written argument after the hearing.  Below we will briefly focus on the new substantive arguments in the motions for rehearing and in the supplements of the argument, beyond what has been stated in the arguments that were already reviewed at the time of the examination of the motions for approval, to the extent that this is necessary for our decision.
31. According to the applicants, the court erred in its conclusions with regard to attributing a personal matter, subordinating the discretion of the board of directors and breaching the duties of fiduciary duty and care, to the existence of alleged damage, and to the standard of judicial review that it applied.
32. With regard to the attribution of a personal matter, it was argued that the court based its conclusion in this matter on the '45% condition' set by Tzuf. According to them, the trial court erred in this determination, on several levels: First, they argued that there is nothing wrong with this condition and that it is in the legitimate interest of the controlling shareholder not to lose the "property" (i.e., control) that he has, since if he is diluted below this threshold, he will be forced to act as required by section 328 of the Companies Law in order to regain control of the company.  Second, the Applicants argued that in any event, Tzuf waived the 45% condition and therefore there was no room to establish conclusions regarding the existence of a personal interest, which, if and to the extent that it existed (and the Applicants do not believe so), passed away even before the merger transaction.  According to the Applicants, there is no reason to adopt the 'when in doubt, there is no doubt' approach regarding a personal matter, and there is no anchor for this in legislation or case law, which indicates that each case must be examined on its own merits.  It was further argued that there should be no "personal interest" in determining the consideration mix and there is no reason to adopt the opinion of Mano according to which Yachak was awarded a unique economic benefit, in light of the equivalence between the two payment mechanisms (where the alternative in raising the cash component is greater control over a company that is worth less).
33. With regard to the subordination of the discretion of the Board of Directors and the breach of fiduciary duties and prudence , it was argued that the opinion clarified that the controlling shareholder had a personal interest only in the NASDAQ outline, and not in the manner of compliance with the law, and therefore there is nothing wrong with Tzuf participating in meetings that reviewed all the alternatives broadly, and not the Nasdaq alternative individually. Moreover, according to them, the prohibition of the person with a personal interest in section 278(a) of the Companies Law applies only as soon as the matter is brought for approval, and not in discussions regarding it prior to this.
34. According to the Applicants' position, the reliance on the opinion of Dr. Hamdani was made in good faith, and that Prof.  Hamdani was even summoned to appear before the Audit Committee, presented his opinion and fully stood behind it.  In addition, they argued that there was no room for the conclusion in the approval decision that the appeal to Prof.  Hamdani constituted an attempt to replace a problematic opinion with a more "convenient" one.  The Applicants referred to the words of the Honorable Justice Ronen in derivative action 7541-12-14 Leibowitz v.  Yeresh, in paragraph 110 of her judgment (Nevo, December 28, 2016) (hereinafter: "the Leibowitz case"), in which she noted that there are cases in which the question of whether this is a transaction in which the controlling shareholder has a personal interest is a question to which there is no clear and unequivocal answer, and that "someone who is not a jurist and is not familiar with the ins and outs of the law and case law on this subject, He is not necessarily supposed to know the answer to this question.  In such cases, contacting a professional who is knowledgeable in the field is legitimate and even desirable.  Therefore, there is room to allow those who acted in this way to rely on the answer they received."
35. The Applicants argued that there was no basis for the determination that the Board of Directors allegedly subordinated its discretion to Tzuf, inter alia, in view of their reliance on the opinion of Hamdani and his position that the Board of Directors is entitled to take into account the interest of the controlling shareholder not to be diluted as part of its considerations. In addition, it was argued that this consideration was in the best interest of the company, since ignoring his will would have led to a possible thwarting of the board's moves at the general meeting.  The Applicants further argued that in light of the exemption granted to the officers by Equitel from a lawsuit on its behalf due to a breach of the duty of care, and in light of the high standard of "recklessness" on their part, there was no reason to approve this ground.
36. With regard to the existence of alleged damage, the Applicants argued that the court erred in understanding Mr. Portnoy's words, and that in any event, the raising of cash for such a transaction could not be considered compensable damage. It is also argued that the financing alternatives are considered in any case.
37. As to the standard of judicial review , the Applicants argue that since the above arguments have not been proven, the decision is protected by virtue of the business judgment rule and thus deserves to be examined.
38. According to the respondent, in summary, the motions for a rehearing should be rejected and the conclusions reached by the court in the approval decision should be adopted.
39. With regard to the existence of a personal interest , the Respondent argued that the preservation of control is a unique interest of the controlling shareholder, and that there is no reason to make the need for the transaction approval process redundant solely on the grounds that the controlling shareholder has the ability to thwart certain outlines at the general meeting, especially in light of the fact that the company had other alternatives that did not require the consent of the controlling shareholder.
40. With regard to the subordination of the discretion of the Board of Directors and the breach of fiduciary duties and prudence , the Respondent argued that no evidence was presented that the Board of Directors considered alternatives that did not require Tzuf's consent to the outline and the advantages of a consideration mix that was mainly shares, or that it negotiated with Tzuf on the matter, as well as that the excess costs of the cash outline were not presented to the Board of Directors, and that it accepted Tzuf's dictate as a fait accompli. In addition, it was argued that the argument of reliance on Prof.  Hamdani's opinion should be rejected, since Prof.  Hamdani did not appear to testify at all, and it is impossible to know what the facts that were presented to him for the purpose of formulating his opinion, and since the opinion in any case does not support the conclusion that the officers are entitled to give exclusive weight to the will of the controlling shareholder, even at the cost of harming the company's interest, or to continue to conduct the meetings of the board of directors that deal with the outline of the transaction.
41. With regard to the existence of alleged damage , the Respondent argues that Mr. Portnoy's words were properly understood and that the Applicants' choice not to testify serves their duty. He also argued that the Applicants' statements as to the point in time at which Tzuf waived the 45% demand were not proven, as to the fact that the demand allegedly benefited Equitel in negotiations with Yoel, or as to the fact that Yoel herself demanded a share component in the transaction.  In addition, it was argued that the Applicants' argument regarding the equivalence of the two payment methods is an expansion of a misplaced façade, and in any case is not a presumption of judicial knowledge, but is purely economic.
42. With regard to the denial of the application of the business judgment rule, the respondent referred to the Vardnikov case and argued that in view of the concern that there is a significant influence on the part of the controlling shareholder on the decision-making process in the company, and in view of the board of directors' refusal to exercise independent discretion, there is no reason to apply the business discretion rule in our case, and there is no reason to limit the increased examination standard set in the Vardnikov judgment only to situations in which the distribution of a dividend causes a material change in the company's capital structure. In addition, it was argued that the Verdnikov judgment did not adopt the "theory of withdrawing personal interest", according to which (as the respondent perceives) if the officer had a personal interest but agreed at an advanced stage to waive it, there is a breach of the fiduciary duty or there is no need for lawful approval of the employment.

Discussion

43. We are dealing with a request for a rehearing, which is based on the provision of section 41(e) of the Courts Law [Consolidated Version], 5744-1984. This provision grants a party the right to petition for a rehearing of a decision to certify a class action filed "in connection with a security", or a decision to approve a derivative action, before a panel of three judges serving in the same instance in which the panel that rendered the decision serves.  This replaces the option available to the litigant to petition for leave to appeal, in relation to decisions in other class proceedings.  This is therefore an alternative to an appellate proceeding, the purpose of which is to streamline the approval procedures of derivative and class actions in connection with securities (see: Civil Appeal 461/14 Rosen v.  Biton at paragraphs 14 and 21 (Nevo, January 14, 2015)).  Within the framework of such a proceeding, the scope of intervention in factual determinations of the first instance must be very limited, even more than a regular appeal proceeding, and on the other hand, there is a wider opening for intervention in the legal determinations determined in the first instance (Civil Case (Tel Aviv Economic) 68338-10-18 Bezeq Israel Communications Company in Tax Appeal v.  A.D.A.  Liad Holdings (2006) in a tax appeal at paragraphs 25-26 (Nevo 1.12.2019)).  These principles will guide us here as well.
44. An examination of the application for approval shows that the respondent (the applicant therein) sought to attack the decisions that were concerned with the choice of the alternative of compliance with the Concentration Law and the approval of the merger transaction in two tracks: first, by means of sections 270(4) and 275 of the Companies Law, which deal with transactions related to the controlling shareholder that require "triple approval" (of the board of directors, the audit committee and the general meeting). The second, by claiming that the controlling shareholder and the officers breached the duties of fiduciary and care imposed on them by virtue of section 254 of the Companies Law.  As is well known, these two attack tracks are separate tracks.  The first track focuses on the conditions set out in the law that are required to be fulfilled in order to approve transactions with "interested parties", while the second track examines the conduct of the officers and the controlling shareholder and the manner in which they exercised their discretion (see: The Vardnikov case, at paragraph 22).
45. In the case at hand, we reached different legal conclusions from those reached by the court in the approval decision, both with regard to the need to approve the merger transaction through the triple approval mechanism set forth in section 275 of the Companies Law, and with regard to the conduct of the board of directors and the exercise of the discretion of its members. Therefore, on the basis of the factual basis established in the approval decision, we found room to accept the motions for a rehearing, as explained below.

Personal Interest - The Normative Framework

46. Tzuf served as a controlling shareholder and officer in Equitel during the relevant period. As such, a central question is the existence of his "personal interest" in choosing the outline of compliance with the Concentration Law or its implementation, in two contexts: first, a special approval, which includes a simple majority but also a majority of the shareholders "who do not have a personal interest in approving the transaction", which is required in accordance with the provision of section 275 of the Companies Law, inter alia, with respect to "an unusual transaction of a public company with its controlling shareholder or an unusual transaction of a public company with another person in which the controlling shareholder has a personal interest...", as stated in section 270(4) of the Companies Law.  Second, an officer of the company must refrain from any action that has a conflict of interest between the performance of his position in the company and the performance of another position of his/her or his personal affairs (section 254(a)(1) of the Companies Law).  This includes, and concretely, an officer who has a personal interest in a transaction brought for approval by the Audit Committee or the Board of Directors, to refrain from taking part in the discussion or participating in a vote in the Audit Committee and the Board of Directors (Section 278(a) of the Companies Law).  In the approval decision, in which the main discussion revolved around Tzuf's personal matter, it was found, as stated, that he had a "personal interest" in choosing the outline of compliance with the Concentration Law and the manner in which it was implemented, a determination that underlies the acceptance of the request for approval.  Let's precede the latter and say right now - our position is different.
47. The term "personal interest" is mentioned in various places in the Companies Law and is defined in Section 1 of the Law, which applies to the entire Law, as follows (emphases added):

"Personal interest" - a person's personal interest in the action or transaction of a company, including a personal interest of his relative and of another corporation in which he or his relative has an interest, and with the exception of a personal interest arising from the very holding of shares in the company, ...

48. The definition of a "personal matter", as it emerges from its examination, does not cast material content beyond the literal meaning of the term, and thus leaves it to the court to infuse content with this concept from case to case, in a manner that will enable it to be adapted to the complex reality that characterizes the business context and to a wide variety of situations (the Verdnikov case, at paragraph 31; Criminal Appeal 3891/04 Arad Investments and Industrial Development in Tax Appeal v. State of Israel, IsrSC 60(1) 294, at paragraphs 45-46 (2005) (hereinafter: "the Arad case"); Irit Habib-Segal, Corporate Law, Vol.  1, 568 (2007)).
49. In the absence of an exhaustive definition in the Companies Law, the case law adopted a two-stage test for identifying a "personal interest." This test, called the "significant excess affinity test", requires the court to rule on two main questions: first, the depth of the gap between the personal affiliation and the interest of the company or its other shareholders, and second, the strength of the personal affinity (Vardnikov, at para. 32; Zohar Goshen and Assaf Eckstein Corporate Law 337-338 (2023) (hereinafter: "Goshen & Eckstein")).  In other words, it is necessary to point to an excess connection that the decision-maker has in relation to it, a significant interest that exists with him and not with the other shareholders (Arad, at paragraph 50; Derivative Claim (Economic) 26814-12-14 Menashe v.  Vision Air Ltd., at paragraph 36 (Nevo, May 3, 2016)).  This connection must be significant, i.e., one that impairs the ability of the decision maker to see the best interests of society before his eyes (ibid.).  It should also be noted that in the context of the controlling shareholder in particular, an excess affinity of particularly high intensity must be identified.  The starting point is that the controlling shareholder, as the main factor invested in the company and the main factor that bears its losses, is also invested in its successes (P.  (Tel Aviv District) 40213-05 State of Israel v.  Givoni, at paragraph 497 (Nevo, December 26, 2012) (hereinafter: "the Givoni case"); Lucian A.  Bebchuk & Assaf Hamdani, The Elusive Quest for Global Governance Standards, 157 U.  PA.  L.  REV.  1263, 1281, 1284-1285 (2009)).
50. On the basis of the aforesaid, it is necessary to examine whether Float, as the controlling shareholder of the company (through a company), had a 'personal interest' in the very choice of the alternative of compliance with the Concentration Law, in the specific alternative that was chosen (the merger transaction) or as to the manner in which the consideration mix was determined. We will deal with these issues below.

"Personal interest" as to the manner of compliance with the Concentration Law?

51. There is no dispute that prior to the merger transaction, Yoel, Nafta and Airport were "tier companies" which, together with Equitel, constituted a three-tiered "pyramid". There is also no dispute that if the number of layers in this building had not been limited by the date determined in the Concentration Law, that is, until the end of 2019, section 22 of the Concentration Law would have applied to the case : according to which the court was entitled to appoint a trustee for the prohibited layers, i.e., for the Nafta and Airport companies located in the building under the second tier company, in a manner that would have expropriated the company's control over these companies.
52. The Concentration Law constitutes a coercive intervention arrangement that harms, in a controlled manner, the ownership of the shareholders in the company, in order to correct distortions in the market as a result of the gap between the financial investment and control of the company (for more details, see the terms of the arrangement for the proposed Law for the Promotion of Competition and the Reduction of Concentration, 5774-2013, Government Bill Appeal 706, 1100-1102).
53. The structural restrictions set out in the Concentration Law distinguished between pyramidal structures that were created after the publication of the bill, and structures that existed at the time of publication of the bill (such as Equitel and the companies under its control). In relation to the latter, it was determined that the limitations set out in the Law and the main enforcement means set out therein, of appointing a trustee on behalf of the court to whom the means of control held in contravention of the provisions of the Law will be granted, will come into effect only within 6 years from the date of publication of the Law, so that a sufficiently long stay will remain for the adjustments required in existing holding structures.  However, the law did not establish the mechanism required to make these adjustments in existing holding structures.  The significance that derives from the lack of regulation regarding the mechanism of "folding" the layers is that the legislature has left the freedom to choose the mechanism of compliance to the controlling shareholders, without imposing additional duties on them, and as stated in the Clal Industries case, which is appropriate for our purposes:

"As stated, the harm to the controlling shareholders is expressed in the fact that they were obligated, within a limited period of time, to execute transactions that will eventually lead to the 'folding' of layers in the pyramid, in such a way that ultimately at the end of the transition period there will be no pyramids with more than two layers.  I do not believe that the law should be interpreted as imposing on the controlling shareholders an additional duty beyond that, a duty that means examining the way that is least harmful to the bondholders, and acting in this way - even if it is not the best way for the company" (emphases added).