A shareholder in a public company sought to prevent the convening of a board committee established to evaluate offers to acquire the company and take it private, claiming that flaws occurred in the appointment of the directors to the committee due to their connection to a controlling shareholder in one of the bidding entities.
The Court rejected the motion and held that the individual was not proven to be a controlling shareholder or that the appointed independent directors are unqualified. In order to determine whether a shareholder is a controlling shareholder in a company, both a quantitative test, which examines the actual amount of shares held, and a qualitative test, which examines the ability to influence and direct the company's decisions, are required. There are situations where shareholders hold a small fraction of the capital, and nevertheless, in a certain situation, they possess the power that enables them to have a substantial influence on directing the company's activities. Here, the individual alleged to be a controlling shareholder holds only a few percent of the company's share capital and it was not proven that he has the ability to influence or direct the company's decisions in a unique manner. Furthermore, no personal or economic connection was proven between the shareholder and the members of the committee which would grant him influence over their decisions or disqualify them from serving as independent directors. Therefore, there are no grounds to prevent the convening of the board committee.