Legal Updates

Directors are not required to provide real-time information to investors about the state of the company

August 19, 2019

An Israeli high-tech company developed a silicone implant designed to help with issues related to chest reduction or lifting, but entered a crisis due to the suspension of its European Standard certificate (CE). However, the directors approached the shareholders with a proposal to dissolve the company and distribute the balance of the funds to the shareholders only after six months and after their attempts to sell the company were unsuccessful. Three of the investors contended, intel alia, that the directors breached their fiduciary duty by not reporting to the investors in real-time about the status of the company.
The Court rejected the claim. Directors owe a duty of trust to the company and not to its shareholders and directors are not required to disclose business information to shareholders unless the shareholder are required to vote at the shareholders' meeting based on the information or when the company is a closely held private company managed as a partnership. Here, the company had dozens of shareholders and in real time the directors believed that there was room to continue developing the company and thus there was no mandatory requirement to update the shareholders on the crisis.