Release from liability, indemnity, and officers’ insurance in an Israeli charitable organization – is it possible?
Arrangements providing release from liability, indemnity and insurance to officers in an Israeli charitable organization ’amutah’ (or ‘amutot’ in plural; the Hebrew words referring to charitable organizations) (and in Israeli Public Benefit Companies) have been gaining momentum recently. This is driven both by officers of such NPO’s who are seeking shelter under arrangements similar to those customary in business companies, and by insurance companies, which consider third-sector organizations as being a market offering considerable untapped business potential.
Unlike the general Israeli corporate laws (particularly, the Companies Law), which prescribe clear rules concerning officers’ duties of trust and care towards their respective corporations, the Israeli Non-Profit Organization (‘Amutot’) Law does not take a similar approach and merely refers to the duty of trust in general terms, stating that the executive board members must act in the best interests of the amutah within the scope of its objects and in accordance with its articles of association and resolutions of its general meeting, and not more than that.
In the absence of straightforward, explicit provisions addressing the obligations imposed on officers of an amutah (members of the executive board, the audit committee, the general manager and managers who are directly subordinate to the general manager) towards the amutah in respect of actions they take by virtue of their positions – court rulings and rules of proper management relating to amutot (as published by the Corporations Authority of the Israeli Ministry of Justice) should inject relevant content over the years and impose on officers of an amutah duties of trust and care and an adequate level of expertise for the purposes of acting in the amutah’s best interests and achieving its objects, in accordance with the customary rules in this regard in the Israeli general corporate laws.
And what about the possibilities of an amutah releasing an officer from liability arising from a breach of the duty of trust or the duty of care that he is obligated to uphold towards the amutah, and granting him indemnity and officers’ liability insurance for a liability that might be imposed on him as a result of an action he performed in his capacity as an officer of the amutah? Also in this regard, unlike the Israeli general corporate laws, the Amutot Law is silent and does not prescribe relevant provisions.
The Israeli Corporations Authority current position is that, notwithstanding the absence of express provisions in the Non-Profit Organization (‘Amutot’) Law, and due to the fact that the Israeli Companies Law does prescribe such arrangements in relation to public benefit companies, there is nothing to prevent officers of amutot from being entitled to benefit from a release from liability, indemnity and liability insurance according to the same arrangements as those that apply to public benefit companies pursuant to the Companies Law. These arrangements can be validated only after having received the approval of the general meeting of the amutah’s members, and provided that suitable provisions have been prescribed in the amutah’s articles of association (after they have been approved by the Israeli Registrar of Amutot).
That being the case, release, indemnity and officers’ liability insurance arrangements may be arranged today in amutot as described above (and as is expected to be anchored in primary legislation in the not too distant future by way of the enactment of a new Amutot Law, which is currently being drafted at the Israeli Ministry of Justice following the round-table discussions held recently in this regard).
The possibility of adopting these arrangements is both warranted and welcome, particularly in light of the trend in recent years of courts clarifying the responsibilities of officers who are managing an amutah and utilizing its funds, and of increasing enforcement and the associated sanctions and punishments, and this, justifiably acknowledging that managing an amutah requires professionalism and suitable training in order to protect the amutah, its donors and those needing the amutah’s services.
At the same time, considering the fact that at issue is a non-profit organization, the adoption of these arrangements is not appropriate for every amutah and should be adopted with restraint. The provision of a release from liability, indemnity and liability insurance is not an insignificant routine fringe benefit; the implications and repercussions of such arrangements must be scrutinized beforehand, objectively and subjectively, in collaboration with lawyers and insurance experts, primarily, in order to ensure that the adoption of such arrangements does not serve to evade or circumvent provisions of law that regulate the proper management of amutot (including the prohibition on the distribution of profits), in a manner that is liable to jeopardize the amutah financially, or its activities towards the advancement or achievement of its objectives.