Similarly, in the summaries submitted by Gutwein, it was claimed that the directors did not know in real time the scope of the investments in the subsidiary and the status of the subsidiary. It is also claimed that:
"It can therefore be said that with regard to the directors, their advanced age, their poor health, and their stay abroad (of Gutwein and Horn) were indeed circumstances in each of them, all the more so together, to view the directors as being unable to fulfill their duties. These circumstances did not allow the directors to formulate an objective recognition, let alone to notify the company and the parents of the inmates, that they were no longer able to function as directors. However, these are not circumstances that occurred in the blink of an eye and fell on the village like thunder on a clear day, but rather they were the result of a process that took place over a short period of time, with the aging of the directors ... (Gutwein's summaries, in paragraphs 25-26, emphases added, Z.Z.).
- These are just a few examples that express the position of the directors, which was also accepted by the trial court, according to which they were not at all aware of the transactions they approved, that the information in their possession was very partial and sometimes erroneous, and that, in fact, they were not at all qualified and skilled to serve as directors in the relevant years of the suit. In these circumstances, and in view of the clear provisions of the Companies Law regarding the duty imposed on directors, there is no choice but to determine that the directors in our case blatantly breached the duty of care imposed on them, which is enshrined in section 253 of the Companies Law, in both its two parts - both the "skill requirement" and the "information requirement", as will be detailed below.
Skill and Competence Requirement
- The requirement that a director must be skilled appears in section 253 of the Companies Law, which was drafted above, but is also anchored in section 224A of the Companies Law, which sets out the conditions of eligibility to serve as a director. According to Section 224A, "a person who does not have the necessary qualifications and the ability to devote the appropriate time to perform the role of a director in the company, taking into account, inter alia, the special needs of the company and its size, will not be appointed to serve as a director." Without going into the question of whether each of the directors appointed was skilled, and to what extent, for the purpose of serving as directors, it is clear that according to the position of the directors themselves, during the period relevant to the lawsuit they could not devote the proper time to performing their duties, in view of their medical condition or their stay abroad.
- In view of the above, the main question that must be discussed is who is responsible for the fact that the company's board of directors were incompetent and unfit to perform their duties and fulfill their duties. The directors' position is that they are "unable to" fulfill their duties, and therefore no responsibility should be attributed to them. The trial court also expressed its position according to which "what is stated in the conclusion [of the opinion of Bilu, Z.Z.] According to which in recent years the managers have 'chosen' not to come and participate in decision-making, it is not 'accurate' to say the least, and it is more correct to say in light of the evidence, that they are 'unable to' fulfill their duties."
- In my opinion, the directors should not be exempted from liability for their non-performance in this laconic determination. Section 227A of the Companies Law explicitly states that: "A director in respect of whom a condition required by this Law for his term as a director or in respect of whom there is a reason for the expiration of his term as a director shall immediately notify the Company, and his term shall expire on the date of the notice." In other words, the law clearly imposes on the director himself the obligation to inform the company if his personal circumstances have changed, and he no longer fulfills one of the conditions of eligibility to serve as a director. While it is true that it is possible to think of some scenarios, such as death or prolonged loss of consciousness, in which the change in circumstances is so drastic and sudden, in a way that in fact prevents the director from giving notice of the change to the company, I do not believe that the case in question is one of these exceptional scenarios. Similarly, we are not dealing with a situation in which one of the directors is unable to understand that he is no longer able to perform his duties properly, such as when a director becomes senile or loses his sanity. Even in these situations, the director is not aware of his situation and cannot notify the company of his situation. This was not the case in our case.
- The trial court, which cites the findings of the Darman Report, details the personal circumstances of each of the defendant directors that prevented them from functioning and fulfilling their duties to the company. Thus, for example, it was determined that Horn had been in the United States for about seven years; that Gutwein had been abroad for long periods; and that Sharon did not function in his last years. It was also noted that the late Yosef Adler passed away, and apparently because of this he was not added as a defendant to the lawsuit. Therefore, the trial court ruled that "only two directors remained on the company's board of directors, Arie Pinkovich and Peretz Rebas, who, as stated in the report of CPA Darman, is 86 years old (and as stated there, he would come to the village several times a week to deal with social matters only)."
Thus, it is clear from these determinations that none of the defendant directors changed from "competent" to "unqualified" suddenly or in any other manner that deprives him of the possibility of notifying the company of the change in his personal circumstances (with the possible exception of perhaps Sharon, to whom I will refer below). A similar conclusion even emerges in Gutwein's summaries, who argued that the change in the directors' personal circumstances was procedural and continued over a long period of time (see the above quote from paragraphs 25-26 of Gutwein's summaries).