Legal Updates

Company officer whom did not receive company approval for a transaction in which he was in a conflict of interest will reimburse the company for all his gains

July 9, 2017

An office of an Israeli company held himself and through his brother and a friend shares of a Romanian company that served as the company's middleman for transactions in Romania. The office contended that his registration as a shareholder was a mistake and that in fact he only lent money to the Romanian company and was mistakenly registered as a shareholder and that as a result of the connection with the Romanian company, the company profited.

The Court held that it is sufficient that a transaction is essentially close to the business of the company is to render it a business opportunity of the company that an office holder is forbidden to exploit and its exploitation constitutes a breach of the officer's fiduciary duties, unless the company was aware of, and agreed to, the conflict of interests of the officer. It is not inconceivable that when a small company is managed as a partnership, some decisions are made without documentation and in an informal process. However, when it comes to a company's decision to approve a conflict of interest, a waiver of fiduciary duties must be specific and not implicit. Thus, it was not proven that the company waived the conflict of interest in a formal decision and therefore whether the officer held shares in the Romanian company or was only a creditor thereof, the officer was in conflict of interest and took advantage of a business opportunity of the company and therefore the officer was ordered to pay the company all gains of the Romanian company.