Discussion
- The main dispute, as it arises from the letter of claim and the application for the temporary injunction, relates to the composition of a special committee appointed by the company's board of directors, in order to discuss the purchase offer submitted to the company on behalf of a group of investors, including Mr. Mizrahi, who is one of the founders of the company and serves as a CEO, director and minority shareholder. Both in the statement of claim and in the framework of the application for an injunction, the Applicant petitioned for an injunction preventing the convening of the special committee in order to examine the proposal of the Mizrahi Group and to refrain from accepting any decision, recommendation or position and/or any other action intended to promote the offer because it is claimed that Mr. Mizrahi is a controlling shareholder in the company.
Conditions for granting temporary relief
- In the framework of a decision on a request for interim relief, two main considerations are considered: first, the chances of the claim, whether the applicant for relief has placed evidence of the alleged existence of a cause of action, and second, the balance of convenience - the damage that is expected to be caused to the applicant if the interim relief is not granted, as opposed to the damage that will be caused to the respondent if the interim relief is granted. There is a "parallel of forces" between the two considerations, so that the more one consideration is clearly tilted in favor of one of the parties, the greater the weight of the other consideration. In addition to these two considerations, the court must also consider considerations that are honest and justifiable, i.e., the conduct of the parties, and their good faith, as well as examine whether the application does not suffer from delay. See: Civil Appeal Authority 72234-04-26 Nano Dimension Ltd. v.) Murchinson Ltd. Canadian Corp14/07/26); Civil Appeal Authority 79551-06-26 Sociedad Espanola de Montais Industries S.A. v. Israel Railways Ltd. (30/06/26).
- Before I examine the chances of the claim and the balance of convenience, I will note that there is substance to the respondents' argument that the remedies in the main claim and in the requested injunctions are similar to the same, and therefore, the tendency in such a case would be not to issue such an order, and to prefer a full investigation of the claim on its merits. See: Civil Appeal 5537/12 Hot Consumer Club The Engineers and Technicians Union Ltd. v. Golden Channels & Co., paragraph 8 (29/08/12)); Civil Appeal Authority 6203/20 Y.A.Z. Construction and Development Company Ltd. v. Rafael Advanced Combat Systems Ltd. (10/09/20).
- In addition, I will note that as a rule, the courts refrain from granting temporary relief, the essence of which is to prevent the convening of a decision-making body in the company, as opposed to a temporary remedy that prevents the execution of the decisions, since on the face of it, the convening of a meeting or meeting, and even the completion of the body's activity, does not lead to an irreversible violation of rights. See: Derivative Claim (Economic) 38124-08-15 Dan Public Transportation Company Ltd. v. Michael Nagar, p. 10 (25/02/16); Miscellaneous Applications Civil (Jerusalem District) 8229/09 Simanovsky v. Jerusalem Municipality, Paragraph 17 (24/06/09) and the judgments quoted there. Moreover, another reason What justifies the rejection of the request to prevent the gathering is the possibility that in light of the decisions that will be made at that gathering, the request may become redundant. See: High Court of Justice 9100/05 Cohen v. Chairman of the Judicial Selection Committee (30/09/05).
Chances of the lawsuit
- The argument that runs like a thread in the statement of claim and in the application for the temporary injunction is based on the Applicant's claim that the members of the special committee appointed by the Board of Directors: Dr. Hadar Ron, Mr. Nadav Kenneth and Dr. Shlomo Ness are unfit to serve as independent directors because they have substantial connections and business connections to Mr. Mizrahi and the entities connected to Mr. Mizrahi, and in a manner that casts real doubt on the ability of the Special Committee to independently examine the proposal of the group of which Mr. Mizrahi is a member.
- The decision of the board of directors that ordered the establishment of the special committee indicates that it was established in a manner that Voluntary In order to examine the acquisition offer through professional consultants and to check whether it is the best offer for the company and its shareholders, and this was convened in accordance with the norm formulated in the case law according to which a stakeholder transaction duly approved by the company's institutions, will be examined retroactively by the court according to the standard of the business judgment rule. See: Class Action (Economic) 40404-03-16 Atzmon v. Osem Investments Ltd., Sections 51-52 (04/08/20); Class Action (Economic) 26809-01-11 Kahane v. Makhteshim Agan (15/05/11).
- In examining the chances of the lawsuit, and given that it was claimed by the Applicant that the convening of the special committee was unlawfully accepted, it is not possible to ignore the fact that the Applicant did not point to a legal source that imposes a legal obligation to convene a special committee. The mechanism set forth in the Companies Law for approving a transaction in which an officer of the company has a personal and regulated interest Sections 270(1) and 272(a) The Companies Law, which is an unusual transaction as defined in the law, requires the approval of the company's audit committee and then of the company's board of directors. In our case, since these are potential merger transactions, the completion of the transaction also requires the approval of the company's general meeting. See: Civil Appeal 8762/20 Atzmon v. Osem Investments Ltd. Sections 51 and 54 (09/12/21).
- Since there is no provision in the law regarding the obligation to establish a special committee to examine transactions with an officer or a merger transaction, there is also no legal requirement regarding the required composition of a special committee, and in any event, the Applicant did not vote on such a demand. In these circumstances and at this stage of the hearing, prima facie, it cannot be said that the Applicant pointed to a corporate defect as alleged by the very convening of the special committee and that the independent directors of the company were appointed to serve as members of the special committee in order to examine a proposal by an interested party, in accordance with accepted practice.
- As to the Applicant's claim that the members of the Special Committee do not meet the conditions for serving as independent directors due to alleged ties with Mr. Mizrahi, it is impossible to ignore the fact that the company is an offshore company as defined in the Relief Regulations and accordingly Regulation 5a(a) "The Audit Committee may consider an independent or independent director under the law of the foreign country, as an independent director, if the qualifications set forth in section 40(b) and (f) with respect to the relationship with the controlling shareholder are met.".
- Therefore, and before it has been proven that Mr. Mizrahi is indeed a controlling shareholder in the company, the conditions of eligibility for the position of an independent director are not examined according to Israeli law, but rather by the foreign country. However, the argument that respondents 4-6 are not qualified to serve as independent directors was not claimed under the laws of the foreign country, and as a result of the aforesaid, it was not even supported by the opinion of an expert in foreign law.
- The Applicant's argument about the incompetence of the members of the Special Committee, which is based on a preliminary argument that Mr. Mizrahi is a controlling shareholder in the company, and therefore the provisions of the Relief Regulations do not apply.
- Section 1 The Companies Law defines the term "control" as defined in the Securities Law, 5728-1968 (hereinafter: "Securities Law"), Where in the definitions section of the Securities Law, the term control is "The ability to direct the activities of a corporation, except for the ability that derives only from the performance of a director or other position in the corporation, and the presumption of a person who controls the corporation if he holds half or more of a particular type of means of control in the corporation; 'means of control' in a corporation are any of the following: (1) the right to vote at a general meeting of a company or a parallel body of another corporation; (2) the right to appoint directors of the corporation or its general manager".
- The definition of the term control establishes two tests: a quantitative-technical test that examines the existence of possession in half or more of the means of control, and a qualitative substantive test that reflects the ability to direct the corporation's actions. The burden of proving compliance with the qualitative substantive test where the quantitative-technical test is not met rests with the person claiming it. See: Civil Case (Economic) 48851-02-12 Purpose of Merger of Companies Ltd. v. Ultra Shape Medical Ltd., Sections 109-110 (July 16,2012).
- There is no dispute that the quantitative test relating to the holding rate does not apply to Mr. Mizrahi, since his holdings in the company's shares amount to only about 7% of the shares. As to the substantive test, it was held that the court must assess the ability of one party or another to direct or influence the corporation's activity while controlling the decision-making mechanism in the company As Ruled in a Derivative Claim 32302-11-17 K.R.N.A. Ltd. v. Gan Shmuel Food Ltd., Paragraph 64 (31/12/19). And indeed, in Habib's book Segal, Corporate Law, pp. 641-642 (2007) It was determined that the ability to operate control is assessed according to two main tests: the practical ability to dictate the identity of the majority of the board members and the practical ability Decide The results of the vote at the general meeting.
- However, as noted below, these are the main means of control, and there are other means of control alongside them. Indeed, the Supreme Court in a criminal appeal 3506/13 B.B. v. State of Israel, Paragraph 215 (12/01/16) Discussed this that control has many facets in relation to the term control that:
"Defining this concept is difficult, inter alia, in light of the existence of different types of control, different types of companies, and different types of decisions and situations in which control can be tested."