A company had to make a change in its holdings structure of its holdings in order to comply with the requirements of the law. The controlling shareholder decided that the change would be made by means of a merger and outlined its terms.
The Court held that the decision was unduly made. Israeli law states that a transaction in which the controlling shareholder has a personal interest (and when there is doubt as to its existence - there is no doubt) requires triple approval by the audit committee, the board of directors and the general meeting with a majority vote of shareholders who do not have a personal interest. In addition, the controlling shareholder may not be a part of the discussion and may not participate in the voting in the audit committee and the board of directors. Here, the limitations outlined by the controlling shareholder on how the merger is to be carried out proves the interest he had in maintaining the proportion of his holdings within the deal. Therefore, his presence at the meeting of the audit committee and the board of directors and the fact that he outlined the merger’s terms means that the decision was unduly made.