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insurance companies. This supervision is usually effected by the issue of instructions,
the imposition of any financial sanctions, and administrative and criminal enforcement.
In recent years, there has also been significant enforcement by the market itself, through
class and derivative actions. This was also supported by the Economic Court, as well as
by the public’s increased involvement at general shareholders meetings.
The Companies Law
The Israeli Companies Law imposes significant corporate governance requirements,
some of which also apply to companies incorporated abroad if these companies issue
securities in Israel. Recently, certain corporate governance provisions were extended
to also apply to listed partnerships. These requirements include, inter alia, a duty to
appoint external directors, a right to submit class actions and derivative actions, and
complex mechanisms for the approval of remuneration for officers and functionaries of
the company and the performance of transactions involving controlling shareholders.
The Securities Law
The Israeli Securities Law imposes duties regarding annual, quarterly and immediate
disclosure, on companies which have issued securities to the public. The scope of
the disclosure required in Israel is rather significant and the requirements under such
disclosure are routinely enforced by the ISA. Financial reports are required to be made
in accordance with IFRS demands.
The Economic Court
Several years ago, an Economic Court was established in Israel to hear corporate and
securities cases. The Court also adopts into Israeli case law many norms from the
Court in Delaware, such as the Business Judgment Rule - the requirement to set-up
independent committees of the board of directors to approve transactions involving
controlling shareholders. We represented two independent committees, one set up by
Discount Investments for the purpose of a merger transaction with its subsidiary and
another set up by Nitsba Holdings for the purpose of the merger transaction with its
parent company.
The Centralization Law
During 2013, the Government decided to enact new legislation (the Centralization
Law) which requires groups holding controlling interests in major financial corporations
(such as banks, investment companies and insurance companies) and in significant non-
financial corporations (such as real estate, technology and communications companies)
to sell one of these assets within six years of the date of publication of the Law (i.e. by
the end of 2019). In the interim period until the sale, the financial companies may only
grow organically, and not via mergers and acquisitions. In December 2014, a list of the
significant financial and non-financial corporations was published.
TheCentralization Lawalsodealswith thebreakingdownof "pyramid structures" (“folding
up of layers”) and prohibits holding a chain of companies that has raised money from the
public. Under the transitional provisions, existing pyramids must reduce their chains of
holdings to only three layers by the end of 2017, and two layers by the end of 2019.
As a result of the need to fold up layers, and due to the increased regulation,
there has been a trend of companies delisting from the stock exchange. Since
the enactment of the Centralization Law, 37 companies have already delisted
from trading.