Can a director of an Israeli company take a business opportunity for themselves?

The duty applies to every office holder, a term that covers directors, the CEO and other senior managers. An opportunity belongs to the company when it falls within its line of business or reaches the office holder because of their position, such as a supplier offer or an acquisition target. Approval must follow the procedures the Companies Law sets for transactions with office holders, usually a board resolution and sometimes the audit committee and general meeting. Where a director takes an opportunity without approval, the company can claim the profit the director made as well as its own loss. A shareholder can pursue that claim as a derivative action if the board declines to act.

Foreign directors of Israeli subsidiaries often sit on several boards in the same sector, which is where these disputes usually start. Taking an opportunity for the parent group is not a safe harbor, because the duty is owed to the Israeli company itself and not to the shareholder that appointed the director. Disclosure should be made in writing before the director pursues the opportunity, and the minutes should record the board's decision to waive it. Indemnification and insurance arrangements generally cannot cover a knowing breach of loyalty. Our guide to directors and corporate governance in Israel sets out the wider duties of loyalty and care.

From the full guide: Corporate Governance in Israel: Directors' Duties

← Browse all Q&A