The court asked this question in a hearing held on March 25, 2002, and respondent 3's answer was as follows:
"To the best of my knowledge, in this situation, in which two support the candidate's admission and two oppose it, no decision has been made approving their entry into the company as required by the bylaws, and then, as in any such case, their response is to turn to the kits, to the court" (page 19 of the minutes).
Counsel for Milmus even contacted the company on the same day and informed the company of the "illegality" of the decision, which concerned the refusal to approve the transfer of the shares to Milmus and their registration in its name.
Indeed, the Company's Board of Directors may refuse to approve the transfer and registration of shares, if the Board of Directors' meeting was lawful, and if the Company's articles of association authorize the Board of Directors to do so:
"The directors can refuse to register a transfer of shares only if a statutory meeting of the board of directors decides to do so. If the regulation authorizes directors to refuse to register and the directors' opinions are divided and they do not make a decision, they will be obligated to register the transfer" (A. Felman: Corporate Law in Israel – In Theory and Practice, Carta 1994, at p. 435).
However, the company must register the transfer of the shares as aforesaid – if no decision is made, or if the decision made is "illegal", i.e., it was not made "at a legal meeting".
- In the circumstances of the case at hand, the question arises: what would this Court have done if it had a request by Milmus to force the approval of the transfer of the shares and their registration in the name of Milmus, when the decision was made by the two directors on behalf of the respondents only, without any reason, after already at the beginning of the meeting held on August 3, 1997, the directors on behalf of the respondents announced that they "refused to approve the transfer of the shares to Milmus". Nothing more than (paragraph 5 of the Respondents' summaries; Appendix D to the Respondents' Statement of Objection to the Liquidation Motion).
In such a case, after hearing the parties, the court would have enforced the approval and registration of the transfer of the shares, and what is the reason for refusing to approve the transfer of the shares and their registration in the name of Milmus. Shares were lawfully purchased from foreign companies and there is no reason to refuse to transfer them to Milmus. In any event, we have not heard that the directors on behalf of the respondents had any reason whatsoever for the refusal, and if they had one, they had it in their hearts. Today, and in retrospect, the respondents raise claims against Milmus due to the liquidation request, as if Milmus's entire intention was to cause the liquidation of the company or to dispossess the rights of Benny Cohen in the company from the outset. These arguments should be heard in the motion for liquidation itself, and not in the motion to dismiss it in limine. Even if it is stipulated in the company's articles of association that the directors are not obligated to explain their refusal, a reason for the refusal will be required in court, and the court will always examine whether the refusal is in good faith, lacks arbitrariness or malice, or whether it is done for side purposes or concerns that have no basis and no substance.