Rights of ADS Holders in Israeli Companies Traded on Nasdaq

As part of proceedings brought by activist shareholders of Nano Dimension, an Israeli incorporated Nasdaq traded company, the District Court ruled that ADS (American Depository Share) holders should be treated as shareholders of the company. The significance of this ruling in Israel: boards of directors will be precluded from relying on ADSs to try and block activist shareholders’ campaigns.

The Israeli Companies Law grants shareholders of Israeli public companies an array of rights, including voting rights, the right to convene general meetings, and the right to add a topic to the agenda of general meetings (including on the appointment of directors). These rights serve activist shareholders looking to influence the composition of the board of directors of a company, and as a result, the company’s progression.

The Israeli Companies Law applies to any company incorporated in Israel, including Israeli companies whose securities are traded on a non-Israeli stock exchange (in this case – on the NASDAQ). In many instances, shares of Israeli public companies traded on the NASDAQ are acquired and held through an indirect holding mechanism, such as ADS.

Until recently, certain Israeli traded companies tried to argue that ADS-holders are merely beneficiaries, entitled to vote and receive dividends, with no effective ability to influence the company.

The District Courts ruling in the dispute over the control of Nano Dimension settled this discussion. The District Court ruled that ADS-holders’ rights are similar to those of shareholders of any Israeli public company traded on the NASDAQ, underscoring the importance of these rights. From now on, all rights granted to shareholders by virtue of the Israeli Companies Law will also be granted to ADS-holders, enabling  them to exercise their power in such companies.     

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