Controlling Shareholder may not Sell Shares to Company’s Competitors
In Atzmon v. Saar Sion Holdings Ltd. the Tel Aviv District Court ruled that a majority shareholder may not sell his shares to a competitor of the company.
In accepting a derivative lawsuit filed by a minority shareholder on behalf of the Company, the court ruled that a controlling shareholder who sold shares to a competitor of the company breached his duty to act in good faith and in a fair manner towards the company and towards its fellow shareholders as provided in the Israeli Corporation Act. The court issued an injunction against the transfer of the shares to the competitor.
Honorable Judge Brun ruled that the competitor bought controlling shares in order to get access to the company’s distribution center. The court noted that the competitor had a legitimate way of action – purchasing or licensing the distribution center directly from the company. If that was done, the all the company’s shareholders would have enjoyed the income. Therefore the controlling shareholder who sold its shares deprived the minority shareholders from any of the surplus and was therefore unfair towards the company’s shareholders.
The court added the fact that the competitor concealed its identity from the minority shareholders by purchasing the shares through a trust company was an indication of the lack of good faith involved in the transaction.
For further information please Contact Us