Legal updates

Refusal of a signatory to sign documents thus freezing the company’s activity constitutes oppression

March 9, 2021

An Israeli entrepreneur and a South American investor established a company in Uruguay that was held in equal parts among them for the development and commercialization of a patent in the field of security cameras and even obtained a distributor for the sale of the cameras. According to the shareholders' agreement, the investor was appointed CFO and his signature was required for any financial expenditure in the company. At a certain point, due to disagreements, the investor stopped fulfilling his obligations in the company, dismissed his representative in Israel and also refused to sign money transfers.
The Court held that this was oppression and the entrepreneur would be authorized to make decisions on behalf of the company and to obligate the company with his sole signature in any matter required to meet the company's obligations to its distributor. To this end, the company's bylaws will also be amended, if necessary, for the purpose of conferring the said authority on the entrepreneur. Oppression is a violation of the legitimate expectations of a shareholder in a company. The Court has the authority to grant a wide and varied range of remedies that fit the circumstances of the case, including remedies and various provisions that bind both the company and its shareholders, depending on the circumstances of the oppression - all with the aim of removing or preventing the oppression. Here the investor has used his power under the shareholders' agreement to freez the company's activities and therefore there is room to grant remedies that will prevent this, including amending the company's articles of association and granting the other shareholder authority to act alone in the company.