Former Shareholders Have No Inspection Rights
In Menachmani v. Israair Aviation and Tourism Ltd. the Tel Aviv District Court ruled that a company’s shareholders loose their special inspection rights in the company’s documents.
The plaintiffs in Menachmani were former shareholders in Israair, the third largest Israeli commercial aviation company. They filed suit alleging that their fellow shareholders and board members made misrepresentations relating to the company’s financial situation, causing the plaintiffs to agree to be diluted. He plaintiffs later sold all their remaining shares to a third party and at the time the lawsuit was filed they were no longer shareholders or board members in the company.
Even though the lawsuit related only to dates at which the plaintiff’s were still shareholders, Honorable Judge Yeshaya held that the inspection rights provided to shareholders and directors pursuant to the Israeli Companies Act terminate when the shareholder sell his shares and when a director is dismissed from the board even in respect to information relating to dates prior to the termination.
The court reasoned that the inspection rights granted to a director are intended to enable him to fulfill his duties and therefore for terminate when he looses his position since the information is no longer needed for decision making. Similarly, a shareholder who has sold his shares does no longer need to oversee the management’s actions and looses his special inspection rights.
The court concluded that when a person looses his special status as shareholder or board member, his statutory inspection rights terminate even in respect of information generated prior to the termination.
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