C.2.1. Existence of prima facie evidence to substantiate the claim
- In fact, the parties do not dispute the facts, and the dispute between them lies in the question of whether these facts are sufficient to establish a prima facie cause of action for the purpose of granting interim relief; there is no dispute between the parties that section 63 is a cogent clause and applies to the rights of the shareholders of the company, and there is also no dispute regarding the content of the protection plan. According to the company, convening a special shareholders' meeting only in accordance with one of the two options presented in the framework of the defense plan constitutes a lawful implementation of the provisions of the section, since these are matters of procedure and not a material impediment to convening the meeting. According to the Applicants, the provisions of the Protection Plan constitute barriers and limitations that curb and qualify the rights of shareholders in contravention of the cogent nature of the section.
- At this preliminary stage, naturally, it is not possible to decide the arguments of the parties on their merits. On the one hand, it appears that the provisions of the protection plan should limit the rights of the shareholders to some extent as they arise from the language of section 63 of the Companies Law. On the other hand, it is necessary to examine whether a purposive interpretation of the law is likely to support the company's position that as long as the substantive right is not denied, its realization can be conditioned on compliance with the conditions it has determined, even in view of the principles of disclosure and transparency to which the company is obligated under the laws of the New York policy and which it adopted as part of the protection plan.
- With regard to the nature of the right; one of the most significant rights for a shareholder is the right to vote, see in this context: Prof. Zohar Goshen and Dr. Assaf Eckstein, Corporate Law 7, 292 (Tali Peled, Nevo Publishing Ltd., 2023):
"The most significant right of shareholders is the right to vote at the company's general meeting. This is the only way they can directly influence the company's conduct. The right to vote is granted to the shareholders as a right attached to the share they hold. The right to vote is a personal property right, and violating it gives the shareholder the right to a personal claim..."
- The wording of section 63 prima facie indicates that although the legislature set a significant holding threshold from the share capital as a condition for the requirement to convene a meeting, in order to prevent harassment of the company by shareholders with negligible holdings, it recognized the possibility that this requirement would be submitted jointly by a number of shareholders whose total holdings accumulate to the required threshold. It seems that this last possibility was determined in light of the importance of the right to convene a shareholders' meeting; A right that allows shareholders to exercise the powers entrusted to them and influence the way the company operates.
- Regarding the importance of the right to convene a special meeting or to demand that certain issues be raised during it, see also Opening Motion (Tel Aviv) 5009-12-12 Shir Roichman v. Biomedics Incubator Ltd. [Nevo] (December 10, 2012):
"There is no doubt that the power to set the agenda at the company's general meeting and to raise issues for discussion is of great significance in the struggle for control of the company. Of course, it is not possible to make decisions in the company without a certain issue being discussed at the general meeting. Therefore, denying the right of minority shareholders to raise issues for discussion constitutes a violation of them."
- In a previous proceeding between the parties, I determined that section 63 of the Companies Law is a cogent clause and that it cannot be stipulated (see: Civil Case (Center) 57198-03-23 Murchinson Ltd., Canadian v. Nano Dimension Ltd. (paragraphs 161-162 and 166) [Nevo] (November 1, 2024), and on this, as stated, the parties do not disagree. It was further held that the arrangement set forth in section 63 is a proper arrangement whose importance should not be underestimated, especially in the context of the appointment and dismissal of directors, as well as in the context of a change in the articles of association; Since the usual authority to convene a general meeting is vested in the board of directors, in the absence of the right to convene a meeting by a shareholder, the required change in the composition of the board of directors or in the company's articles of association may be subject to the wishes of the board of directors (see: Tzipora Cohen, Company Shareholders - Claim Rights and Remedies 2, 7, 14 (2nd ed., 2008)).
- In view of the fact that one of the cornerstones of a proper corporate regime is the preservation of the rights of shareholders to demand a special meeting, it was held, for example, that the company's board of directors is not entitled to consider whether to convene a meeting at the request of a shareholder, but rather whether the shareholders meet the holding rate required by law (see, for example, Opening Stimulus (Tel Aviv) 62111-11-20 Mivlan Real Estate (K.D.) Ltd. Sela Capital Real Estate Ltd., Paragraph 4 of the judgment of the Honorable Justice M. Altuvia [Nevo] (02.01.21):
"According to the provisions of section 63 of the Companies Law, the board of directors of a company does not have the discretion to convene a special meeting where a shareholder in a public company meets the condition set out in section 63(b)(2) of the Companies Law, and he wishes to convene a special meeting."
- It seems, therefore, and the words are said at this prima facie preliminary stage only and without setting rivets, that alongside the language of the section, which ostensibly does not give the company discretion as to how to implement the shareholders' right, its purpose also supports the reduction of the restrictions on its implementation and application.
- According to the company, this limitation is a matter of procedure, and in essence, it does not infringe on the cogent right. To substantiate its claim, the company refers to the judgments in the Stahl case and the Unocal case, according to which imposing restrictions on the association of shareholders is a legitimate way to protect the company from takeover. The company also referred to Schadule 13D, which establishes the obligation of shareholders to act transparently, and inter alia, to detail the agreements between them in order to prevent a takeover that will take place in the dark.
- I will relate to this position of society in two aspects. First, the company is subject to two sets of laws, both Israeli and American law. Therefore, there may be truth to the company's position that the shareholders have various disclosure obligations in accordance with American law and must act in accordance with them. However, American law and the obligations under it cannot dictate the interpretation of the provisions of Israeli law, or infuse into it an interpretation based on rationales different from those that were before the Israeli legislature. The application before me was heard in accordance with Israeli law and the question before me is whether, by virtue of section 63 of the Companies Law, and only by virtue thereof, the company is entitled to determine that its application to the company in a manner other than the manner set out in the protection plan will lead to the dilution of the shareholders. To the extent that the shareholders are subject to additional disclosure obligations under American law, they apply alongside the provisions of section 63 and in addition to it, but the application here will not be decided accordingly. Needless to say, the decision here does not derogate from the obligations imposed on the shareholders by virtue of foreign law, and these, as stated, are not discussed in this framework and before me.
- Second, with regard to the Company's reference to the judgments in the Stahl and Unocal cases, according to which, according to the Company, the American case law recognized that the definition of "ownership" that includes voting agreements is legal and reasonable in the face of a threat posed by an activist shareholder and does not constitute a violation of the fundamental voting rights of the shareholders (paragraph 39 of the Company's Response to the Request for Interim Relief).
For the purpose of this prima facie stage, I have not found it necessary to determine the reasonableness of the stipulation in the protection plan that restricts agreements between shareholders for the purpose of approaching the company to convene a meeting, and this, in light of my determination, which will be detailed below, with regard to the balance of convenience. At the same time, in light of the fact that the company raised the argument in relation to the rulings in the Stahl case and the Unocal case, I will address the matter briefly and of course without setting rivets;
- When examining a poison pill defense plan, the court must examine whether the clause is proportionate in relation to the threat the poison pill protects (see: In re The Williams Companies Stockholder Litigation, 2021 WL 754593 (Del. Feb. 26, 2021) (hereinafter: "the Williams case"), there in paragraph 22 of the judgment):
"When conducting the proportionality analysis, the court also examines the relationship between the defensive action that the directors took and the problem they sought to address. The court thus examines “the reasonableness of the end that the directors chose to pursue, the path that they took to get there, and the fit between the means and the end".
- It appears that the company also does not dispute that a request to convene a shareholders' meeting cannot, in and of itself, constitute a threat to the company. Its argument is that the threat from which the defense plan protects is in agreements that are not open between the shareholders. According to her, any agreement between shareholders entails the potential for additional agreements between them that are not visible, and therefore it must be protected against by means of the poison pill.
- It is interesting to note that Williams above (which seems to reflect a more recent ruling than the one established in the Stahl case) suggests that the threat from him must be concrete and not theoretical (paragraph 24 of the judgment):
"In fact, the Plan was not adopted to protect against any specific threat at all. The Board was not concerned about any specific activist threat. Nor was the Board acting to preserve any specific asset like an NOL. Instead, the Board was acting pre-emptively to interdict hypothetical future threats."
- And later, in paragraph 29 of the judgment:
"The first threat was quite general-the desire to prevent stockholder activism during a time of market uncertainty and a low stock price. The second threat was only slightly more specific-the concern that activists might pursue “short-term” agendas or distract management The third threat was just a hair more particularized-the concern that activists might rapidly accumulate over 5% of the stock and the possibility that the Plan could serve as an early detection device to plug the gaps in the federal disclosure regime…"
- In our case, given that no concrete threat was presented, apart from the general concern regarding the takeover of the company's cash coffers by activist shareholders, it would be appropriate to examine whether it is possible to accept the company's position that the implementation of the protection plan for any coordination between shareholders on any issue is reasonable and proportionate. See also the reference in paragraph 20 of the judgment in the Williams case to Acting in concert (although there the circumstances of the activation of the pill were different):
"Tooley addressed the faulty logic of Moran I’s derivative presumption. It is now possible to embrace the reasoning of Gaylord and acknowledge that poison pills, if improper, work an injury on stockholders directly by interfering with at least two fundamental stockholder rights.