Hence - to the substance of things.
- The question that is at the center of the lawsuit against the directors is whether they were negligent. As may be recalled, the trial court dismissed the claim based on a number of main reasons: First, it was determined that the responsibility for the company's situation lies with the shareholders who did not fulfill their duty to replace the board of directors once it became clear that the directors were unfit to perform their duties. Second, the trial court found no justification for the suspicion on the part of the directors of Pinkowitz's improper conduct or the need to monitor his actions. Third, it was held that since the professional advisors did not warn the directors of the company's situation, the directors who did not raise questions regarding the investment of the funds in the subsidiary should not be held liable. I will examine these assertions - although not in their order - below.
The Duty of Care of Directors
- The basis for our discussion is the scope and content of the duty of care imposed on officers of the corporation, including the members of the company's board of directors. The rule is that a director's duty of care towards the company imposes on the director the duty to take reasonable precautions in order to prevent damage to the company. The determining test in this regard is the test of the reasonable director (as opposed to the "reasonable person" test), in the sense that serving as a director requires meeting a demanding standard of management skill as a professional occupation. In other words, every director must take all the precautions that a reasonable director would have taken in the circumstances of the case (Civil Appeal 610/94 Buchbinder v. Official Receiver in his capacity as liquidator of the Bank of North America, IsrSC 57(4) 289, 310 (2003) (hereinafter: the Bank of North America case). This obligation is also enshrined in Section 253 of the Companies Law, which states that:
"An officer shall act at the level of skill at which a reasonable officer would have acted, in the same position and in the same circumstances, including taking reasonable measures, taking into account the circumstances of the case, reasonable measures to obtain information relating to the business feasibility of an action brought to him for approval or of an action carried out by him by virtue of his position, and to receive any other information that is important in connection with such actions."