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What must an Israeli company director do when a conflict of interest arises in a board vote?

A director who has a personal interest in a transaction being voted on must disclose that interest in writing and abstain from both the discussion and the vote, under Section 255 of the Companies Law 5759-1999. This applies unless the company's articles or an authorized shareholder meeting expressly permits participation. Failure to disclose is a breach of fiduciary duty and can render the transaction voidable. For public companies, related-party transactions above NIS 250,000 require audit committee approval in addition to board approval.

The Companies Law 5759-1999 imposes a strict "personal interest" regime on all Israeli company directors. Section 255 defines "personal interest" broadly — it includes a direct financial stake in the transaction, an indirect stake held through a family member, and interests held through companies the director controls. Upon becoming aware of a conflict, the director must notify the company secretary or board chair in writing before the relevant vote takes place. In private companies, the board may proceed with an interested transaction if the non-conflicted majority approves it after full disclosure. In public companies, Sections 270–281 impose additional layers: certain related-party transactions require approval by both the board and the audit committee, and in some cases also a shareholder meeting. For a complete overview of director duties and corporate governance in Israel, Section 255 sits alongside the more general fiduciary and duty-of-care obligations in Section 254.

The practical risk for directors who fail to disclose a conflict is significant. The company may seek to unwind the transaction, and the director faces potential personal liability for any damage caused by the undisclosed conflict under Section 254. Foreign directors sitting on Israeli company boards — a common structure in foreign-invested startups and joint ventures — are equally subject to these obligations regardless of their country of residence. A well-structured director governance framework typically includes a standing conflict-of-interest policy and an annual declaration process. This ensures ad hoc conflicts are disclosed and documented promptly, rather than managed informally in ways that may later expose the board to challenge. Directors may not vote on their own appointment, remuneration, or indemnification without authorization under Section 270.

⚖ In Practice
  • Governing law: Section 255 (disclosure obligation), Sections 270–281 (approval procedures), Companies Law 5759-1999
  • Competent authority: Board of Directors; Israel Securities Authority (Rashut Nirot Erech) for public companies
  • Disclosure format: Written notice to the company secretary or board chair before the relevant vote
  • Consequence of non-disclosure: Transaction is voidable; director personally liable for damages under Section 254
  • Public company threshold: Related-party transactions above NIS 250,000 require audit committee and board approval (2026)
  • Practical note: Directors may not vote on their own salary or indemnification without board authorization under Section 270

From the full guide: Directors and Corporate Governance in Israel: Duties, Liability and Best Practice

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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