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Trends in Corporate Litigation
The openness shown by the courts these claims has resulted in an increasing number
and breadth of such motions being filed. The “natural candidates” for motions of this
kind have always been transactions with controlling shareholders. Gradually, motions
have expanded to include cases of dividend distributions, delisting from the stock
exchange, challenging companies’ compensation policies, and challenging detrimental
business decisions.
Court decisions are showing a willingness to allow a company's officers to be released
from their duties. For the first time in decades, a derivative action was recently approved
where it was determined that officers of the company acted recklessly and not entitled
to enjoy exemption from responsibility. Such rulings raise questions regarding the
effectiveness of the protection that companies provide to their officers.
However, in the area of protection of companies and officers, the establishment of the
Business Judgment Rule ("BJR" - adopted from the State of Delaware) is key.According
to this rule, the court will not replace the discretion of the officers of the company if it
is shown that they were fully informed and acted in good faith and without any conflict
of interests, even if – in retrospect – it transpires that their decision was incorrect.
Adoption of the BJR shows an understanding that the company is best placed and the
most effective body for making real time decisions and not the court.
The establishment of an increasingly popular and innovative Claims Committee ("CC")
in cases where a conflict of interests exists between the company and its Management.
The CC comprises a body of independent directors or outside professionals who
examine a company's actions in a specific matter and recommend the appropriate path.
In several cases in which we represented company officers, the courts have adopted the
conclusions reached by the CC, which included applying the Business Judgment Rule.
Class Actions in the Area of Consumer Protection and Antitrust
Issues
The Class Action Law of 2006 allows the filing of a class action not only in the corporate
field but also in other fields. The consumer protection and antitrust fields have seen a
particular rise in class actions. With approximately 1,500 motions for approval of class
actions filed in 2015, the vast majority dealt with relations between a service provider
and consumer. While not all claims concerned large amounts, there have been motions
filing for hundreds of millions of Shekels.
In the antitrust and competition area, a trend has developed of “importing” proceedings
to Israel following previous proceedings that have been conducted against international
conglomerates in Europe or the U.S.: Investigations by the European Competition
Commission or class actions in the U.S., for example. These proceedings put to the test
well-established rules in private international law, such as the traditional laws regarding
service – which, according to the applicants in representative proceedings, no longer
apply in the age of the global village.
The Economic Affairs Division has eased the Judiciary's workload and sped
up the litigation process in “Economic Affairs,” which includes claims based
on the Securities Law, derivative claims and claims pertaining to the rights and
obligations of shareholders of a company.