From the statements of the directors quoted above, it is evident that at least some of them openly admitted that they were not at all aware of the scope of the transfers of funds to the subsidiary (see Reeves' words and the arguments in Gutwein's summaries, above) and others relied extensively on the general reports of Pinkowitz and other consultants or experts regarding the required actions and the company's financial situation, without demanding to examine the documents and data themselves. Without holding regular and proper board meetings in which opinions will be exchanged and discussion will take place, and without raising relevant questions or examining possible business alternatives. In these circumstances, it is not possible, in my opinion, to accept the argument of the directors or the determination of the trial court that the directors acted properly in approving the actions on the basis of their reliance on the words of the CEO and the consultants.
- Indeed, a director is entitled to the opinion of professional experts (section 266 of the Companies Law). However, receiving an expert opinion or advice does not exempt a director from exercising independent discretion as to the nature and correctness of the advice (Yosef Gross, Directors and Officers in the Era of Corporate Governance 171 (2010)). In our case, as stated, the directors did not present documents or data on which they relied prior to the approval of the actions by them, and did not refer to the minutes of board meetings from which it can be learned that they did indeed receive professional and well-founded opinions that a reasonable director would have relied on before approving such action, and that this was done through the exercise of discretion and after conducting an appropriate investigation.
- It should be emphasized that even the determination of the trial court that the company had at its disposal various consultants who did not warn the directors of the company's situation does not describe a concrete reality of the directors' active consultation with experts regarding the transfer of funds to the subsidiary. In fact, close to the trial court's ruling that the company's advisors did not warn the directors about the company's situation, the court emphasizes that according to her testimony, the company's bookkeeper, Ms. Krasner, contacted Pinkovich and his son only about the company's situation, and did not even know whether Rebes knew about the company's situation (paragraph 182 of the trial judgment). Moreover, the court added that "in Gutwein's affidavit he explicitly states that in addition to Pinkowitz's representation, the directors also relied on consultants and experts who said that 'everything is fine and that there is a profit'" (paragraph 180 of the trial judgment). In my opinion, the acceptance of these testimonies contradicts the determination that the directors did not breach their duty of care towards the company by relying on the representations made to them by experts and consultants.
The main determinations of the trial court, as well as a significant part of the directors' own statements, lead to the conclusion that the directors were not informed in real time of the scope of the transfers of funds from the company to the subsidiary, and that they approved these actions without collecting the relevant information and without holding regular board meetings. The directors' argument that they should not be held responsible for the company's damage because they relied on consultants and experts, which they also reiterated in the framework of the pleadings in the appeals, was made in vain, without a factual basis or concrete evidence in this matter - who the experts were, what their opinion was, whether a minimal inquiry was made of what was stated therein.
- Summary of matters so far: Contrary to the ruling of the trial court, I am of the opinion that the directors Rebas, Gutwein and Horn breached the duty of care imposed on them by virtue of sections 253, 224A and 227A of the Companies Law, with its two components, mainly based on the arguments of the directors themselves and the rulings of the trial court. The directors refrained from collecting relevant information and did not ensure that they were informed of the details of the transactions that they approved by virtue of their position, thus violating the duty to inform. In addition, according to the directors, they even lost their skills and ability to devote time to their activities as directors, and nevertheless, they refrained from notifying the company of this, without a satisfactory explanation for this avoidance. An exception is Sharon, who became incompetent and retired from his positions at the company as of October 2000. Therefore, his breach of the duty of care is limited to the period preceding his illness and his announcement of retirement.
Once I have reached the conclusion that the directors were negligent in breaching the duty of care imposed on them, the other components of the tort of negligence must continue to be examined - namely: the existence of damage to the company and a causal connection between the negligence attributed to the directors and the said damage.