The Companies Registrar Rears Its Head – Financial Sanctions for Failing to File Reports

In the past, when companies failed to submit annual reports, the Companies Registrar was satisfied with issuing warning letters. However, recently, we have noticed a change in policy, as the Companies Registrar has increased enforcement efforts, imposing fines amounting to a few thousand shekels on companies that do not comply with the requirements.

This latest change in enforcement began gradually approximately two years ago, with the classification of companies as “law-breaking.” Yet, a further step can now be seen, with the imposition of financial penalties.

It appears that the technological transformation of the Companies Registrar , including the transition to providing computerized and online services, has enabled it for the first time to more accurately monitor the obligations of companies, whether it be a company’s obligation to pay the annual Companies Registrar fees or a company’s annual reporting obligations, as well as subsequently impose financial sanctions on violating companies.

The Israeli Companies Law goes a step further, and provides that should a company avoid paying any fine imposed upon it by the Companies Registrar , the Registrar shall have the power to require payment of such debt by anyone registered in its registry as a director of the company, or that was registered as such at the time of the violation. Although it is hard to believe the Companies Registrar will take such drastic measures, judging from the increased enforcement of the recent years, companies should not rule out the possibility that the Registrar will operate such mechanism too, in order to apply pressure and induce directors to comply with their respective companies’ reporting obligations.

It is not yet clear under which criteria the Companies Registrar operates when issuing financial sanctions. Financial sanctions were not imposed across the board on all the companies currently labeled “law-breaking” in the Companies Registrar registry. Therefore, it seems that on a practical level, this is still an incremental change, rather than an all-encompassing one. Nevertheless, if thus far companies have been lax in complying with their reporting obligations, the change in the enforcement policy might very well force them to proactively meet those obligations.