A minority shareholder contended that the controlling shareholder excluded her from the company's operations, created fictitious debts toward her and treated her in a manner amounting to shareholder oppression. The controlling shareholder contended that it acted lawfully within its authority as the sole director and that the minority shareholder knew in advance that she would not be involved in management.
The Court accepted the claim and held that de facto, the company operated as a "quasi-partnership," justifying a remedy of separation. The Israeli Companies Law empowers the Court to grant an oppression remedy when the legitimate expectations of the minority are harmed. In a company constituting a "quasi-partnership," a remedy of separation may be granted in the event of a breakdown of trust and corporate deadlock, even without proving actual oppression, in light of the parties' legitimate expectation of joint management. Here, although the formal agreement stipulated that the controlling shareholder would manage the company as the sole director, the company was managed as a business partnership based on a personal relationship and mutual trust in day-to-day management. However, the controlling shareholder oppressed the minority shareholder by, among other things, collecting management fees from the company without an orderly procedure or mutual consent. As an irreconcilable breakdown of trust has occurred between the parties, a separation of interests must be ordered, whereby the majority shareholder will purchase the shares of the minority shareholder (a forced buyout).