"The court may, at the request of a shareholder, order the cancellation of a decision that was made at a general meeting that convened or that was conducted without meeting the conditions set forth therein under this Law or in the Articles of Association."
- The provision of section 91(a) of the law indicates that a defect in the summons of the general meeting does not lead to the nullity of the decision, but only to its invalidity. The case law noted that "this is a proper result, which appropriately balances the interest of the company to conduct itself properly with the interest of a shareholder who was harmed by the defective summons process" (Civil Case (Central District) 8746-10-09 Trustee of the Creditors' Arrangement of Afcon Industries Ltd. Feuchtwanger, para. 67 (December 16,2010)). If so, the company's decisions are not invalid. A shareholder who has been harmed by them must attack their acceptance. When considering his request to cancel them, all the considerations on the agenda must be taken into account, including the date on which the application was submitted, the time that has elapsed since the decisions were made, the severity of the defects, the impact that the cancellation of the decisions will have on the management of the company, and more.
- Does the fact that the decision was taken by the majority shareholders, in a manner that in any case nullifies the possibility that a different decision will be made in light of the rule of the majority in the company, leads to the conclusion that there is no reason to disqualify decisions due to defects in the convening of the meeting or in the invitations to it? The answer to this, of course, is no. The principle of majority rule does not mean that the limitations of the law do not apply to him. This is especially the case when we are dealing with the dismissal of a director, who is determined by law to be given a reasonable opportunity to present his position before the general meeting.
Discussion and Decision
- I will preface by saying that I am of the opinion that there were significant flaws both in the convening of the general meeting and in the plaintiff's invitation to it. Notwithstanding the aforesaid, in the special circumstances of the present case, and especially due to the lengthy years that have passed since the decisions were made, my conclusion is that it is not possible to order the cancellation of the decision in such a way that the situation will be reversed so that the plaintiff will continue to control the company as a sole director and with an exclusive right of signature. I will first detail the defects that occurred in the conduct of the defendants, and then I will discuss their implications in the circumstances of the present case.
- I do not accept the defendants' argument that they acted lawfully in convening a general, annual or special meeting, in accordance with their authority under the law. Contrary to what they claimed, they did not apply to the court with a request to order a general meeting. Their claim focused on a financial dispute with the plaintiff, who in their opinion discriminated against their father, and later them, by not sharing with them the profits from the management of the gas station. Accordingly, even the request for temporary relief that was filed at the same time as the filing of the claim for the provision of accounts did not include a request to order the convening of a general meeting. The court, on its own initiative, sought to enlighten them on the power inherent in their power as majority shareholders and their ability to use it, in accordance with the provisions of the law, in order to achieve their goal (the decision of the Honorable Justice E. Ron of November 4,2019). The clear evidence that the general meeting was not convened by virtue of the court's decision is the fact that the decision was given on November 4,2019, when the meeting was convened the next day, November 5,2019. There is also no evidence that the defendants approached the plaintiff with a request to convene a general meeting directly, but he refused to do so. Even if it is assumed that the plaintiff insisted on his right to continue managing the company as a sole manager in a meeting with CPA Agbaria on September 25,2019, after that there was a disconnect between the parties and the defendants did not approach the plaintiff with a formal demand to convene a shareholders' meeting. The defendants should have acted strictly in accordance with the law and sent him a formal request to convene a general meeting. This is especially in light of the fact that there was a significant change in the way the company was managed, and in particular the dismissal of the plaintiff, who by law has the right to express his position on the matter.
- Nor do I accept the defendants' argument that the invitation to the meeting was lawfully served on the plaintiff. At the end of the day, the purpose of issuing an invitation to a shareholders' meeting is to inform the recipient of the meeting. In our case, the plaintiff and some of the defendants live in the same building; on the ground floor lived the defendants' mother, Hatem and Hazem. On the floor above them lived Nasser and the plaintiff. It is not clear why the invitation was not served directly to him. The defendants had no real explanation for this other than the fact that they were not in contact with the plaintiff. The defendants' conduct is particularly difficult in view of the fact that they did see fit to appear at his home the day after the general meeting in order to personally deliver the company's minutes to him. Although it is possible to produce court documents by way of pasting, this is a relatively inferior method of invention, since there is difficulty in verifying that the document did indeed reach the recipient. Hamdan, who handled the delivery of the invitation to the plaintiff and the affidavit, were not summoned to testify. According to the defendants, they were not able to locate them. In this state of affairs, I determine that it has not been proven that the invitation was indeed received by the plaintiff prior to the date of the general meeting.
- The flaws in the convening of the general meeting and the invitation to it are flaws that go to the root of the matter, especially in light of the fact that there was a material change in the management of the company on the agenda. As stated, notwithstanding the aforesaid, I do not see any reason to cancel the decisions in such a way that the situation will be restored to the situation that existed before the decisions were made. I will reason.
First, even the plaintiff's conduct was not free from significant defects, possibly even more severe in their intensity than the defects in the defendants' conduct. As a sole director of the company, its management was exclusively in his hands. In this situation, after Hussein's death and the receipt of the inheritance order, he should have initiated a convening of the general meeting for the purpose of appointing a director from among the defendants, since according to him, the management of the company is supposed to be joint with them. The plaintiff refrained from doing so, and it seems that there are legs to the defendants' claim that he was not interested in convening a general meeting on the grounds that he did not accept the changes that might occur as a result in the management of the company. The proof of this is that even in his lawsuit he insists on his right to remain as a sole manager and has the exclusive right to sign in the company and requests that an injunction be issued prohibiting changes in its management. This is a classic case in which a need arises for a self-receivership of shareholders. Although the defendants did not act in accordance with the provisions of the law, the "original sin" that led to this is at the plaintiff's doorstep.