Legal Updates

A transaction between sister companies will not be considered a conflict of interest merely because it was conducted by an officer appointed in both

January 20, 2022

A shareholder who held shares in two sister companies, sought to cancel transactions executed between the companies on the grounds that they are transactions in conflict of interest as they were conducted by the same officer which appointed for companies.

The Court held that the transactions were lawfully executed. Israeli law requires a special approval mechanism for transactions under which the officers or controlling shareholders of the company may use their control over it to generate benefits for themselves or others. In addition, the transaction must be for the benefit of the company. Nevertheless, an officer in two affiliated companies will not be deemed one of a personal interest merely due to the fact that such officer serves in both. Here, the fact that the officers were appointed in the two companies does not suggest the existence of a "personal interest", especially when the two companies are sisters which are managed in an inseparable manner. Thus, the transactions were lawfully executed.