Holding of shares in escrow must be recorded at the shareholders registry

July 2, 2019
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The legal update was published in Afik News 286 03.07.2019

הפ (ת"א) 43765-09-16 בבילה החזקות בע"מ נ' מגדלי יואב במודיעין בע"מ, 27.06.2019, בית המשפט המחוזי בתל אביב - יפו, כבוד השופט מגן אלטוביה

Investors in a company-owned construction project contended that the shareholder in the company holds shares in escrow for them and demanded that the shares be registered in their name, as well as the termination of the director’s term of office due to his indictment in a criminal offence.
The court rejected the claim. The Companies Law requires that a shareholder who is an escrow agent report this to the company, and the company shall register it in the register of shareholders, noting his escrow agent position. Here, not only does the Companies Registrar records and the registry of shareholders at the company do not record any escrow, but in reports to the Tax Authority, on the basis of which the company received exemption from payment of tax in connection with the land transaction made by the parties together also recorded that the shares are not in escrow and one can not now raise contentions that contradict the report by virtue of which tax exemption was granted. Regarding the removal of the director, the law prescribes several types of offenses upon conviction thereof a director ceases to serve. However, an indictment is not a legal cause to terminate the term of office of a director.