Free Consultation
Corporate Law

What happens when an Israeli company director has a personal interest in a proposed transaction?

Under Sections 267–278 of the Companies Law 5759-1999, an Israeli company director who has a personal interest in a proposed transaction must disclose that interest to the board in writing before any discussion or vote takes place. The director may not participate in the board's deliberations or vote on the matter. Failure to disclose or participating in the vote exposes the director to personal liability and can render the transaction voidable. When the interested party is also a controlling shareholder, a mandatory three-tier approval process applies: Audit Committee, Board, then General Meeting of shareholders.

The Companies Law 5759-1999 (*Hok HaHavarot*) imposes a comprehensive disclosure and recusal framework for transactions in which a director has a personal interest. Under Section 270, "personal interest" (*ניגוד עניינים*) is broadly defined: it includes the director's own financial stake in the proposed transaction, a financial stake of the director's family member, or a stake held through a company the director controls or in which the director holds a significant interest. The director must submit a written disclosure to the board secretary or directly to the board before the item is discussed. The remaining board members then vote without the interested director's participation. If the disinterested board approves the transaction, it is binding on the company, provided the approval is properly documented in the board minutes. The duties of directors under Israeli company law cover both the disclosure obligation and the broader fiduciary duty framework.

When the transaction involves a controlling shareholder — defined as holding more than 50% of voting rights, or less if they exercise practical control — Section 275 of the Companies Law escalates the approval requirement. Such a transaction must pass through three sequential tiers: the Audit Committee (*Va'adat Bikoret*), the Board of Directors, and the General Meeting of shareholders. At the General Meeting, approval requires either a simple majority that includes at least one-third of the minority shareholders voting in favor, or a simple majority where minority votes against do not exceed one percent of total voting rights. Any tier that is bypassed renders the transaction voidable at the election of the company or any interested shareholder. Foreign investors and fund representatives who sit on Israeli company boards as director nominees are subject to these rules in the same way as Israeli directors, and should maintain a written conflict-of-interest register as standard practice.

⚖ In Practice
  • Governing law: Sections 267–278, Companies Law 5759-1999 (Hok HaHavarot)
  • Competent authority: District Court (Beit Mishpat Hamehozi) for challenges; Israel Securities Authority (Reshut Niratim) for public companies
  • Disclosure timing: must be in writing and submitted before the board discussion — a late disclosure does not cure the procedural defect
  • Three-tier approval (controlling shareholder): Audit Committee, then Board, then General Meeting with mandatory minority-shareholder quorum
  • Sanction for breach: transaction voidable; director personally liable for losses caused by the undisclosed conflict of interest

From the full guide: Directors and Corporate Governance in Israel: Duties, Liabilities and Compliance

Related Questions

Related Guides

Need legal help with this topic?
Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

← Browse all Q&A