Legal Updates

Fiduciary duties of an officer of a company prohibit competition with the company or use of company business opportunities

February 22, 2019
The legal update was published in Afik News 278 13.03.2019

ת.א. (חי') 37305-01-19 יוניקלין בע"מ נ' מיכאל (מיקי) הסה, המחלקה הכלכלית בבית המשפט המחוזי בחיפה, 22.02.2019, כב' סגן הנשיא השופט רון סוקול

In a company dealing with consulting and maintenance of “clean rooms” for laboratories, there were two shareholders, a majority and a minority. At some point the minority shareholder resigned from his position as a CEO of the company but remained a shareholder and a director. After his resignation, he opened a competing company in which he was the sole shareholder and director.

The Court issued a cease and desist order prohibiting the minority shareholder from working in the “clean rooms” field and ordered him to provide data as to his actions to date.  The central fiduciary duty imposed on an officer of a company is to act solely for the benefit of the company and to promote the Company’s purposes.  In particular, Israeli law prohibits any action that involves a conflict of interests between the fulfillment of the duties in the company and the fulfillment of other functions or personal affairs; competition with company business; taking advantage of company business opportunity in order to obtain a personal benefit or benefit for another; and non-disclosure to the company of information relating to its affairs, which came into possession by virtue of the status in the company. Here, the founders agreement also forbade competition against company’s business, and the minority shareholder dealt in his new company in consulting as to “clean rooms”, which undoubtedly competed with company business and took advantage of company business opportunities, even if the company did not have the ability to perform the work after the minority shareholder quitted his job in it.  Thus the fiduciary duties were breached by him