Civil Case (Jerusalem) 50435-11-19 Anwar Qawasmi v. Hatam Qawasmi - part 4

The Disputed Facts

28. The parties disagree as to the circumstances that occurred after Hussein's death, which caused a rift between them and the defendants' self-convening of the general meeting, as happened subsequently. I will detail their versions.
29. The plaintiff's version. According to the plaintiff's version, he approached the defendants and suggested that they continue to operate the station through the company and asked them to choose which of their sons would be appointed as an additional manager in the company in place of Hussein.  He also suggested that they change the signing rights in the company in such a way that the plaintiff would have the right to sign jointly with any of them.  Shortly after Hussein's death, Hatem joined the station as an employee and assisted the plaintiff in operating and managing it.  In addition, the defendants left the task of managing the station in his hands.  They also did not transfer Hussein's shares in their name and for a long period of time refrained from reporting to the Registrar of Companies the transfer of the company's shares to them.
30. On July 25,2019, the plaintiff and Hattam met with CPA Ibrahim Abagria, the company's auditor, in order to arrange the transfer of the shares from Husin to his heirs and to arrange the composition of the board of directors. Only Hatam showed up for the meeting, while the rest of the defendants chose not to appear.  The plaintiff noted that the defendants' claim that they were waiting to receive a telephone message from him regarding the possibility of arranging their participation in management was false and unreasonable.  At that meeting, he suggested that Hatam join the company's board of directors and for this purpose demanded that he obtain a power of attorney from the other shareholders in order to be able to hold a meeting of the company and appoint him as an additional manager, but the defendants refrained from doing so.  After the meeting, the plaintiff submitted to the Registrar of Companies notices of the transfer of Hussein's shares in accordance with the inheritance order that was given to him at that meeting.  After these words, he continued to run the company and Khatam continued to help with this.
31. 00On November 7,2019, Hazem and defendant 7, Nasser Qawasmeh (hereinafter: Nasser) came to his home and handed him a document, edited in Hebrew, which he did not understand. They told him that this was the minutes of the company's general meeting, which was supposedly accepted at the general meeting that convened on November 5,2019.  At the meeting, it was decided, inter alia, to terminate the plaintiff's term as a director and officer of the company immediately and to cancel all the powers and privileges given to him as a director and officer of the company.  In addition, it was decided to appoint Hazem and Hanan as directors and sole authorized signatories in the company (the minutes of the meeting were attached as Appendix F to the plaintiff's affidavit).  They hinted to him not to approach the station any further.
32. According to the plaintiff, he did not invite shareholders to the alleged shareholders' meeting and was not required to convene it or convene a general meeting of the company. He was not even invited to participate in such a meeting, and all the more so in a special meeting.  In addition, only in retrospect did he learn that the defendants had filed a claim against him for the provision of accounts and additional remedies within the framework of the parallel proceeding.
33. The defendants' version. The defendants' version of events is different.  According to them, the plaintiff did not bother to report to them about the company's activities and did not convene a general meeting, neither annual nor special, neither in 2018 nor in 2019.  They treated their uncle with extreme politeness and initially did not ask to cancel his appointment as a director and replace him, but only to obtain details about the station's conduct and the accounting system, as well as to appoint one of them as his manager.  For a year, the plaintiff rejected them again and again; did not provide any details about the financial conduct of the gas station; he postponed the appointment of another manager and did not convene a general meeting.  Only during the month of July 2019 was the plaintiff persuaded to appoint Hatem as a director on behalf of the defendants and as an authorized signatory.  It was agreed that a general meeting would be held for this purpose and that before the other defendants arrived at the meeting, Hatem would arrive early and arrive at the office of CPA Agbaria, where it was supposed to take place, and present the plaintiff with the prepared minutes, so that if the plaintiff was willing to sign it, the rest of the defendants would come to sign.
34. According to the defendants, the plaintiff's description of what happened at that meeting in Agbaria's office does not correspond to reality. At that meeting, CPA Agbaria wrote a document entitled Minutes (Appendix 6 to the defendants' affidavits).  According to this document, a decision regarding the appointment of a signatory as a director of the company was placed on the agenda, as well as the appointment of a signatory and the plaintiff as authorized signatories on behalf of the company to represent it and act on its behalf in such a way that the signature of each of them separately in the addendum to the company's seal would bind it in any matter.  The document was intended to be signed at the meeting by the plaintiff and the defendants, some of whom were supposed to appear physically and some by way of a power of attorney.  The document was not signed because the plaintiff refused to sign it due to the powers granted to the defendants in it, and according to Hatam's testimony he tore up the document and announced that there would be no meeting.  The defendants refer in this matter to WhatsApp messages sent by Hatam to his brother, from which the contents of the document emerge, and the plaintiff's refusal to attach Hatam as an authorized signatory, not separately or together, and to limit his consent to the fact that Hatam would serve as a manager in the company but not authorized to sign on its behalf.
35. According to the defendants, after the plaintiff refused to hold a general meeting or a special meeting in order to discuss the appointment of directors, with or under him, they acted on two parallel levels. On October 3,2019, they filed an urgent ex parte motion with the Family Court for temporary relief.  After the hearing of the claim and the application was transferred to the District Court on November 4,2019, a hearing was held on the application.  In its decision, the court noted that given that the defendants are shareholders, they have the power to convene a meeting of shareholders in the company in order to make decisions, including regarding its management, and this is the correct way to act, and not through the court.
36. Prior to this decision, on October 28,2019, an invitation to a general meeting was posted on the plaintiff's door, with the first item on the agenda being "the appointment of a new manager for the company". Counsel for the defendants at the time, Adv. Majed Hamdan, arranged for the invitation to be delivered to the plaintiff by means of a courier to the plaintiff's apartment at the address of the building where some of the defendants also live.  The invitation letter reads: "Third visit 28.10.19 at 9:00 a.m.  There is no one in the house.  It was pasted on the door of the house on the third visit" and attached an affidavit regarding the date of delivery.
37. On November 5,2019, at 11:30 a.m., a general meeting of the company was held at Adv. Hamdan's office, in which 5 of the defendants were present and defendants 2 and 4 delegated Hanan's power to vote on their behalf. According to the minutes of the meeting, it was unanimously decided to terminate the plaintiff's term as a director of the company immediately from the moment the minutes were signed, and to appoint Hazem and Hanan as directors and deputy directors, respectively.  In addition, a new auditor was appointed for the company, and the appointment of the plaintiff and CPA Agbaria as authorized signatories of the company was terminated.
38. Conclusion. It is difficult to determine exactly what happened at the meeting with CPA Agbaria, since each of the parties gave a different version of the matter.  Agbaria was not summoned to testify by any of the parties in a manner that might shed light on what happened.  After hearing the parties and my impression of the plaintiff's testimony, as well as taking into account the remedy sought by him to remain as the sole and exclusive authorized signatory holder of the company, I am inclined to conclude that he did indeed find it difficult at first to relinquish his full control over the management of the gas station, after years of managing it exclusively.  In any event, whatever the facts in the matter, to the extent that the plaintiff did indeed refuse to jointly manage in contravention of the defendants' demand, and to the extent that he refused to convene a general meeting of shareholders to discuss it, the defendants should have acted in accordance with the provisions of the law for the purpose of convening the general meeting.  I will discuss this issue later.

The parties' arguments

39. According to the plaintiff, the decisions made at the shareholders' meeting that allegedly convened on November 5,2019 are null and void. He tried to convene a general meeting with CPA Agbaria on July 25,2019, but the defendants failed to do so, and thereafter no legal meeting was convened.  Section 67 of the Companies Law instructs the manner in which a special general meeting is convened.  The defendants did not have the right to convene an independent general meeting.  The meeting that was claimed to have been convened on November 5,2019 is not a special general meeting and therefore they were not entitled to make decisions.
40. Alternatively, the plaintiff claims that even if the meeting was convened lawfully, he was not invited to it. He did not receive the invitation, which was allegedly pasted to the door of his apartment, in the building where Hattam, defendant 2 Yasser Qawasmeh and defendant 5 Frida Qawasmeh also live.
41. On the other hand, the defendants claim that they acted in accordance with the law in convening the general meeting. According to them, the plaintiff refused to hold a general meeting and made it clear that he would not discuss the possibility of replacing him as a director.  As shareholders with at least 10% of the issued capital and at least 1% of the voting rights, they have the right to demand a special meeting.  In light of the plaintiff's refusal to convene a general meeting, they turned to the court, which ordered them to convene a general meeting (the decision of the Honorable Judge E.  Ron of November 4,2019).  They also met the conditions for convening a meeting independently (shares of the defendants who were physically present at the meeting, as well as shares of defendants 2 and 4 who gave power of attorney to Hanan, Appendices 2 and 3).  On October 28,2019, an invitation to the general meeting was pasted on the plaintiff's door, which included an agenda for the appointment of a new manager.  After a third visit, the invitation was pasted on the door.  On November 5,2019, a general meeting was held, after which they delivered the minutes of the meeting to the plaintiff at his home.
42. The defendants further claim that even if there were flaws in the process of convening the meeting, there is no reason to cancel the decisions made therein. In corporate law, the rule of majority decision applies.  It is inconceivable to cancel the decisions and reinstate the plaintiff retroactively to serve as a director.  The defendants note that the plaintiff refused the invitation sent to him for a general meeting on June 17,2020, which was sent through their counsel to a general meeting on July 27,2020, but the plaintiff refused to discuss the issue of the directors.

Convening a general meeting or a special meeting in a private company: the provisions of the law

43. The annual general meeting appoints directors unless otherwise stipulated in the articles of association (section 59 of the Companies Law, 5759-1999, hereinafter: the Law or the Companies Law). The general meeting may dismiss a director at any time, unless otherwise provided in the articles of association, provided that the director is given a reasonable opportunity to present his position before it (section 230(a) of the Companies Law).  Thus, for the purpose of dismissing the plaintiff and appointing directors on their behalf, the defendants should have arranged for a general meeting.
44. An annual general meeting must be held every year, no later than 15 months after the last annual meeting was held (section 60(a) of the law). If a general meeting has not been held, the court may, at the request of a shareholder or director of the company, order its convening (section 62(a) of the law).

A special general meeting is convened by the board of directors of a private company in accordance with its decision and at the request of one or more shareholders who have at least 10% of the issued capital and at least one percent of the voting rights in the company or one or more shareholders who have at least 10% of the voting rights in the company (section 63(a)(2).  The board of directors is required to call a special meeting within 21 days from the time a demand is submitted to it (section 63(c)).  If the board of directors has not called a special meeting that was required, the applicant has two possible paths.  The first is a self-meeting.  The petitioner is entitled, and in the case of a shareholder - even some of them who have more than half of their voting rights, to convene the meeting himself, provided that it does not take place 3 months from the day on which such demand was submitted (section 64(a) of the Law).  It should be noted that this arrangement strikes a balance between the desire not to abandon the power to convene the general meeting and set its agenda only by the board of directors, and not to grant power to shareholders who have a minimal interest in the company, and whose granting of such a right may constitute excessive interference in the management of the company by its authorized organs (Tzipora Cohen, Shareholders in the Company: Claim Rights and Remedies, Vol.  2 (2nd ed.  2008, hereinafter: Tzipora Cohen).  The second track is to turn to the court.  If the Board of Directors did not call a special meeting that was required, then the court may, at the request of the requester, order its convening (section 65 of the Law).

45. Regarding the self-convening of the general meeting, it has been noted in the literature that this 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 the 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 will of the board of directors" (Tzipora Cohen, p. 14).
46. An invitation to a general meeting in a private company shall be given to anyone entitled to participate in it no later than seven days before the date of its convening, provided that it is not given more than 45 days before the date of its convening (section 67 of the Law). The invitation shall indicate the date and place where the meeting will be held, as well as the agenda and reasonable details of the topics to be discussed (Section 68 of the Law).
47. What is the law in a case where there were flaws in the manner in which the meeting was convened or summoned?

In this regard , section 91(a) of the Law states: