This section requires, in effect, that an officer of a company comply with two main requirements - the first is to take reasonable measures to obtain information relating to the feasibility of an action brought for his approval and any other information of importance in this regard, andthe second is that he must have an adequate degree of skill and qualifications. I will say at this point that even without addressing the question of whether the decision to transfer the funds from the company to the subsidiary in our case was reasonable, it appears that most of the members of the board of directors breached the duty of care imposed on them, and did not meet the two requirements enshrined in section 253 of the Companies Law - "skill requirements" and "notification requirements".
- As stated, a significant part of the directors' defense arguments was devoted to the reasonableness of the content of the decision to transfer the massive funds from the company to the subsidiary. It was argued that this was a legitimate investment intended to realize and realize the company's goals by maintaining the factory that provided employment for some of the residents in the village. At most, it is argued, this decision stemmed from an error in business judgment, and therefore enjoys the protection of the "business judgment rule".
Indeed, the business judgment rule, which is enshrined in many legal systems, provides protection to board members from judicial review of the content of a decision made, and in fact instructs the court not to interfere in the judgment of the company's officers, even if it was wrong, as long as a number of prerequisites are met. This rule is based on the perception that the legal system has no institutional advantage when it comes to assessing business risks, which are an integral part of decision-making in the business field, which is largely based on dealing with uncertainty. However, the immunity granted by this rule to the business decision is not absolute, and in contrast to the non-intervention in the content of the decision, with regard to the decision-making process by the company's officers, the law sets clear standards and determines the procedural precautions they must take.
- In view of the aforesaid, I have not found it necessary to discuss, at this stage, the question of whether the decision to transfer the funds from the company to the subsidiary was a decision on a legitimate investment intended to realize the company's objectives, or whether it was a decision that was unreasonable from a business point of view. This, even without deciding on the question of whether and in what manner the business judgment rule was adopted in the Israeli legal system (many have expressed their position that the rule has been adopted in practice in Israeli court rulings as the standard for auditing the decisions of boards of directors, but the discussion of the relationship between this rule and section 253 of the Companies Law has not yet been cleared in case law; see: Yoram Danziger and Omri Rahum-Twig, "The Rise of Business Judgment and the Fall of the Duty of Care of Directors," Joseph Gross 23, 37-43 (2015); Amir Licht, "The Name of the Rose: Precautions and Business Judgment of an Officer", Law and Business 19 (2015) (hereinafter: Licht)).
- In view of the aforesaid, the first question that must be examined is whether the directors breached the duties of care imposed on them by virtue of section 253 of the Companies Law. These duties, as stated, are procedural in nature, and do not relate to the content of the decisions made by the board of directors, but rather to the decision-making process, or more precisely - to its absence.
As stated, the trial court was very firm in its rulings regarding the non-functioning of the board of directors and its incapacity during the period relevant to the claim. Thus, for example, it was held that: