"Our case law has long recognized various circumstances as circumstances that establish the right of the minority shareholder to remove the discrimination and separation of powers in the company, including: the mismanagement of a company; Ongoing damage to the legitimate expectations of the minority for participation in its day-to-day management and the distribution of its profits; as well as a severe crisis of confidence between the shareholders of a private company that is managed as a quasi-partnership" [Ginzburg, at para. 33].
I will discuss below the plaintiff's arguments, taking into account the question of the existence of such legitimate expectations.
Registration of the debt to a "related party"
- As a rule, the plaintiff has a legitimate expectation of a fair distribution of the company's resources between it and the defendant as shareholders therein [see: Individual Industries, at para. 8; Civil Appeal 4179/17 More Insurance Agency (1989) in Tax Appeal v. Eran Rubin, at paragraph 49 of the judgment of Justice Mintz (Nevo, December 6, 2018) (hereinafter: "the Rubin case")]. This expectation is strengthened when we are dealing with a private company with a limited number of shareholders, which opens a larger opening for the exploitation of the minority by a majority shareholder [Rubin, at para. 50; Irit Habib-Segal Corporate Law 608-610 (2007) (hereinafter: "Haviv-Segal")].
- One way to recognize an unfair distribution of the company's resources is to show that a unilateral withdrawal of the company's funds was made in favor of the majority shareholder [for example, see: Civil (Economic) Case 6310-09-19 Gil Blottreich v. Alex Schneider, at para. 186 of the judgment of then-Vice President H. Kabub (Nevo, August 16, 2020)]. Such withdrawal can be expressed, inter alia, in the transfer of funds from the company's coffers without satisfactory documentation regarding the actual charges [for example, see: Civil (Economic) Case 56587-06-17 Nadav Keinan v. Zohar Zaza Sareli, at paragraphs 19-23 of the judgment of Justice R. Ronen (Nevo, October 26, 2020) (hereinafter: "the Keinan case")].
- In our case, I am of the opinion that the plaintiff has met the burden of showing that the registration of the debt in favor of the defendant without sufficient explanation on his part harms her legitimate expectations as a minority shareholder to distribute the company's wealth - its assets, rights and funds - in accordance with the percentage of ownership without eroding it in favor of the majority shareholder. The unexplained record regarding the company's alleged debt to Gazit may create a substantial concern that the plaintiff will be deprived by the defendant. In Note 5 to the Company's financial statements for 2018, a debt of the Company to a "related party" in the amount of approximately ILS 310,181 was recorded without any description of the details of the debt [Appendix D to Gazit's main witness affidavit, at p. 54]. In Note 5 to the financial statements for 2019, it can be seen that the amount of the debt rises to a total of approximately ILS 494,490 with a description according to which the debt is "in accordance with an agreement with a related party to whom the company owes him management fees as of 2007 and ongoing consulting as of 2010" [Appendix F to Gazit's main witness affidavit, at p. 73]. This is without additional evidence, even prima facie, regarding the basis for the amount of the debt and its calculation.
In cross-examination, the defendant admitted that he was the "related party" listed in the financial statements, and gave an ostensible explanation for his height: