Legal Updates

Even a director appointed by a shareholder acts independently for the benefit of the company and not for the appointing shareholder

May 20, 2020

As part of a family dispute, a shareholder has demanded the company to disclose information to the director appointed on his behalf.
The Court rejected the motion and held that only the director may require the information and not the shareholder. Further, such request should be submitted to the Corporate Court and not as part of a family dispute. Israeli Companies Law gives a director of a company the right to inspect company documents for the purpose of fulfilling such director’s duties. This right is somewhat limited to the discretion of the company if there is a concern that the director does not act for the benefit of the company or when there is lack of good faith on the part of the director. A director’s fiduciary duty is towards the company and not towards the shareholder who appointed such director. Therefore, even if a shareholder believes that the company failed to comply with a director data request, only the director may demand the information, either through a claim or through approaching the chairman of the board or in any other way that aligns with the fiduciary duties to which the director is obligated under law. Here, even if the director was appointed as a shareholder’s representative, this does not eliminate the obligation of detaching the director’s relationship with the shareholder, because the fiduciary duty is first and foremost towards the company. Thus, if the director believes that he did not receive information, he may apply to the Corporate Court.