Client updates /  Business Judgment Rule

Minutes of board meetings and board committee meetings have become a key tool for Israeli courts when examining directors’ conduct against the business judgment rule. Therefore, it is important to know how to record, document, and distribute minutes.

After a lawsuit filed by liquidators of a company that collapsed against the company’s former officers, directors, and independent auditors was dismissed in limine, a new Israeli Supreme Court ruling overturned that decision and allowed the liquidators to move forward with the lawsuit, alleging that lack of oversight was what led to the company’s collapse. The significance of this new ruling is that the “business judgment rule” will no longer be interpreted as providing automatic protection to executives, and they may now be compelled to participate in lengthy legal proceedings to prove their entitlement to legal protection.

This ruling constitutes a precedent in the way the court applied the standards of judicial review and held that the business judgment rule should not be applied if business decisions are made by officers while in a state of conflict of interest.

The Israeli Supreme Court has set a precedent by ruling that the Business Judgment Rule should also be applied to a company’s board of directors when it is deciding whether or not to file a derivative suit.