Termination of a Distribution Relationship

May 27th, 2010

According to the Israeli Law

Posted by: Roy Kubovsky, Adv.

A common way available to a foreign manufacturer who wishes to distribute and sell its products in Israel, is to appoint a distributor on it’s behalf in Israel (there are of course other ways which the manufacturer may choose, for instance development of an internal distribution system, etc). 

In general, the relationship between manufacturer and distributor is governed by a distribution agreement (whether oral or written) which is executed between the parties. Unlike the situation in most European countries, where there is specific legislation which regulates and deals with the relationship between manufacturer and distributor, in Israel this issue has yet to receive specific legislation and hence the Israeli Courts are forced to make use of mechanisms from other legal areas (such as contract law, agency law, unlawful enrichment, etc.) in order to deliberate and rule in cases brought before them which deal with these matters. 

Parties to a distribution agreement are free to determine the duration of the agreement, whether it will be for a given period (e.g. 3 years), an unlimited period (e.g. without time limit) or for a given period which renews periodically (e.g. 3 years with extensions of 1 year on a yearly basis). It should be noted that generally, along with the provision regarding the period of the agreement, the agreement will also include a provision regarding the period of the prior notice that should be given before termination. 

Theoretically, a case in which there is a provision in the agreement that determines the duration of the prior notice that a manufacturer should give its distributor before termination, is a simple case, and in such an event, all that is required from the manufacturer who wishes to terminate the relationship is to follow the provision. 

The more complicated case is when the agreement is for an unlimited period (whether this was the contractual consent in the beginning or whether circumstances led to it, for instance by an extension of a written contract beyond the original period), and it contains no provision regarding the prior notice period that should be given before termination. In these cases the Israeli Courts have ruled that since there is a presumption that the parties did not intend to create a contractual relationship for an unlimited time, such relationship can be terminated by giving reasonable prior notice.  

The reasonability of the prior notice is examined in accordance with the specific circumstances of each case and by two main guiding principles as follows: (i) the reasonable period of time since the beginning of the contractual relationship and until the termination – this period of time needs to provide the other side with sufficient time in order to reap enough profits from the relationship and to recover its investment and expenses (in a distribution relationship the general assumption is that the fruits of the investments are not immediately reaped) and (ii) the duration of the prior notice which was given – this period of time needs to provide the other side with sufficient time in order to organize its business towards the termination and to seek and find a new alternative source of income. Alongside these guiding principals additional criteria have been outlined by the Courts, in order to examine the reasonability of the notice, including the nature of the product; the period of time which was required in order to achieve penetration of the products into the market; the extent and timing of the investments and expenses the distributor had bear; the distributor’s expected revenues in comparison with the distributor’s investments; whether the distributor had concentrated all of its resources and its sources of income towards the manufacturer or whether it has alternative sources of income and so forth. 

When the notice which was given is unreasonable from the standpoint of either of the above two principles (or both of them), the manufacturer is in breach and hence the distributor is entitled to recover the damages it suffered due to the termination. As we mentioned above, the resonable period of time differs from case to case since it derives from each case circumstances, and while there are cases where the Courts ruled that a short period of time (3 months) is reasonable, in other cases the Courts have ruled that the the reasonable period of time needs to be significantly longer (one year or even more). 

We noted earlier that in theory, the simple scenario is when there is a provision in the agreement which determines the duration of the prior notice that should be given before termination. This “simple” scenario has of late become complicated when the Israeli District Court ruled that although there was a provision in the distribution agreement, which determined that the agreement can be terminated without cause by giving at least 3 months prior notice, this period of time is unreasonable and the reasonable period of time of the prior notice should be at least one year. This ruling was based on the fact that the relevant provision in the agreement used the words “at least” 3 months, from which the court has concluded that the parties did not intend that 3 months prior notice would be sufficient for any and all kinds of circumstances, but rather that for any case a prior notice of less than 3 months would be insufficient.  

To summarize, a manufacturer who wishes to terminate a distribution relationship should examine the case circumstances in light of the forgoing principles and criteria, and such especially when the agreement does not refer to the duration of the prior notice it should give before termination. In addition, it our recommendation, if the termination will eventually lead to legal dispute, to have legal consultant from the preliminary stage, when the decision to terminate the contractual relationship is taken, in order to perform steps and procedures to shorten the prior notice period. 

In light of the forgoing precedent, it is also important to carefully draft the provision regarding the prior notice period, in a way that will leave no doubt whatsoever about the specific period of the prior notice that should be given and considered sufficient in any case circumstance, and in a way which will deprive any possibility to interpret it otherwise.

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May 20th, 2010

The implications of Israel becoming a member of the OECD

Posted by: Gadi Ouzan  & Dani Rinot 

The Organization for Economic Cooperation and Development (OECD) has officially accepted Israel as a full member to its organization. 

The organization was founded in 1961 as a club of developed, democratic and liberal countries, whose representatives meet and work to coordinate their policies in the economic, social environment and financial fields. 

Israel has been trying to join the organization for the past 20 years, but although economically inferior countries have been accepted easily, Israel was not granted an opportunity to join. 

 The implications  of becoming a member of the OECD for a relatively small country like Israel are significant , therefore the Governor of the Bank of Israel, Professor Stanley  Fischer and Israel’s Finance Ministry have decided to rank the matter at top priority and enter into a special process in order to meet the tough acceptance criteria of the OECD. 

The acceptance to the OECD was made possible thanks to Israel transforming into a developed country with a free market while also strictly adhering to responsible and balanced economic policies in recent decades. These policies include reduction of Israel’s debts, maintaining fiscal and development policies, cutting taxes and enhancing capital market efficiency. 

 Israeli authorities believe that the accession to the organization highlights the satisfaction corporations have in Israel’s economy. 

There are many implications to the accession to the OECD:
As Israel is recognized as a member of the leading economies of the world, we believe that it would strengthen investors’ confidence in Israel’s economic standing, thus increasing investments into Israel. 

Additionally, the accession is expected to improve treatment on social issues such as poverty and social inequalities.   This new status serves as a reminder that these issues should be dealt with in a timely and efficient manner. 

Finally, the OECD’s approval reaffirms Israel’s status as a leading economic and technological power.

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April 27th, 2010

Posted by: Gadi Ouzan  & Dani Rinot 

A Delaware court, a German defendant and a tower in the middle of Tel Aviv – it is just the time to enforce

Good luck. Two years ago you had entered into a share purchase agreement with a German company, which was later breached by it and caused you substantial damages. Your US lawyers filed a claim to a Delaware court and received a judgment in your favor.  You discovered that the defendant owns a nice building in Tel Aviv.

Naturally, you may consider enforcing the Delaware judgment in Israel, in order to put your hands on the valuable building.

How is this done?   

The Israeli Foreign Enforcement Law sets forth the terms for enforcing a foreign judgment in Israel. In general, it enables the courts in Israel, provided certain conditions are met, to declare a foreign judgment (in a civil matter) as enforceable in Israel, thus transforming it into an exercisable judgment and conferring upon it such status so that it can be enforced and executed in Israel.

If the conditions under law are met, the court may declare such Foreign Judgment as enforceable in Israel. The conditions are as follows:

(i)       The court that issued the judgment was competent to do so, according to the laws of the state in which the judgment was given;

(ii)      The judgment is not subject to an appeal;

(iii)     The obligation in the judgment is enforceable under the laws for enforcement of judgments in Israel and its content does not contradict public policy; and

 (iv)     The judgment is enforceable in the state in which it was given.

The intention is that a Foreign Judgment not be granted any greater standing than its standing in its country of origin (for example, if the Foreign Judgment cannot be enforced in the foreign country, due to the Statute of limitations it will not be valid in Israel).

The burden to prove the existence of the accumulative conditions above is on the applicant requesting the enforcement of the Foreign Judgment.

The Foreign Judgment Law specifies a number of circumstances in which despite the existence of the aforementioned conditions, an Israeli court will be reluctant from declaring a Foreign Judgment as enforceable:

(i)       Reciprocity –The Foreign Judgment was issued in a country in which its laws do not permit the enforcement of judgments of Israeli courts.

(ii)      Period of enforcement – If the application to enforce a Foreign Judgment is filed after more than five years from the date in which such Foreign Judgment was rendered (unless Israel and the other country in which the Foreign Judgment was given agree to a different period of time, or if the Israeli court finds special reasons that justify the delay in the filing of the application).

(iii)     Prejudice to Israel – If the enforcement of the Foreign Judgment may prejudice the sovereignty or security of Israel.

Moreover, according to the Foreign Enforcement Law, a Foreign Judgment will not be decaled as enforceable if the opposing party proves any one of the following defenses:

(i)       The judgment was obtained by fraud;

(ii)      The Israeli court resolved that the defendant was not afforded a reasonable opportunity to argue his case and bring before the court evidence prior to the issuance of the judgment;

(iii)     The court which issued the judgment was not competent to do so under the rules of private international law applicable in Israel;

(iv)     The Foreign Judgment contradicts another judgment given in the same matter between the same litigants and is still valid; or

(v)       At the time the action was filed in the court of the state in which the Foreign Judgment was given there was a pending action on the same matter and between the same litigants before a court or tribunal in Israel.

 According to the Foreign Enforcement Law, a Foreign Judgment that is declared by a competent Israeli court as enforceable is considered for all execution purposes valid as if such judgment has been rendered in Israel. Namely, it can be enforced by the Execution Office in Israel.

Congratulations, your foreign judgment was enforced by the Israeli court and your Israeli lawyers will be able to impose the necessary pledge or attachment on the defendant’s real estate property for your benefit.

Based on the courts’ precedents, the defendant should be aware that the court will only examine whether the foreign judgment meets the requirements of the law with respect to enforcement in Israel and will be reluctant from reviewing the judgment as a court of appeal. 

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Exporter – Beware! Criminal Obstacles Ahead

March 25th, 2010

The Implications of Israel adhering to the OECD’s Convention for the Prevention of BriberyRecommendations for Future Steps

Posted by: Gadi Ouzan  & Dani Rinot

A few months ago it was widely reported in the press that a foreign government had frozen engagements with seven international companies, including an Israeli security company, in the wake of suspicions of bribery and corruption of a senior official in such country. It is especially interesting to follow these reports in the context of the recent legislative amendments in Israel, addressing the prohibition to bribe foreign public officials. These amendments are reviewed, for your convenience, below:

On March 11, 2009, Israel joined the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of the OECD (the Organization of Economic Cooperation and Development), and in doing so, joined 37 other countries that already signed the Convention. Israel’s accession to this Convention constitutes an important stage in the process of Israel becoming a member of the OECD, a process that began in May, 2007.

As part of Israel’s accession to the Convention and its efforts to be accepted to the OECD, the Israeli legislator initiated several legislative amendments in order for the Israeli internal legislation to conform to the Convention’s principles and the OECD’s requirements, similar to the restrictions imposed on US companies under the US Foreign Corrupt Practices Act (FCPA).

  1. Bribing a Foreign Public Official – a Criminal Offense – in the framework of an  amendment to the Penal Law, the offense of bribing was expanded such that “bribing a foreign public official for an act associated with his position to ensure business activity or another benefit regarding business activity”, constitutes a criminal offense, the punishment of which can reach up to 3.5 years imprisonment, and the court is entitled to impose a fine in an amount of up to NIS 202,000 or up to four times the value of the benefit received due to the payment.The consequences  of this amendment is that Israeli citizens and Israeli companies shall now be exposed, inter alia, to criminal charges in Israel for giving benefits to foreign public officials abroad.
  2. Payment of Bribery Abroad is not a Recognized Expense – A proposed legislation to amend the Income Tax Ordinance, so that deduction of payments made in violation of any law shall be prohibited for tax purposes, is currently pending. The said amendment was proposed, among other reasons, to comply with the OECD’s requirements, pursuant to which it is necessary to forbid deduction of bribery payments to foreign officials, as income-generating expenses.   


Recommendations for Future Steps
In the framework of corporations’ preparation for the new legislation and rules, it is advised, among other things, to consider taking the following measures: 

  1. Review Agreements – In light of the accession to the Convention and the amendment of the Penal Law, we advise Israeli companies that engage in export activity to review their agreements with consultants, agents, distributors and business partners, and incorporate in the agreements detailed provisions addressing the prohibition to give illegal payments to foreign public entities.
  2. Adopt Internal Compliance Program – although the law does not determine a special director offense, it is recommended that Israeli companies operating abroad consider adopting a voluntary compliance program addressing this matter. Such a compliance program would generally include preparing a plan determining the organization’s guidelines  and policy; internalizing such guidelines  within the organization; allocating resources for an internal training program for employees and business partners; appointing a senior compliance officer within the company to supervise  the matter; encouraging employees to freely report any suspicion of an offense to the compliance officer (a “hotline”); conducting due diligence examinations  regarding business partners’ activities, etc.

    In the United States (where similar legislation has been in effect for many years), the existence of an internal compliance program is taken as a factor by the enforcement authorities when determining whether to initiate legal proceedings against a corporation and its directors, and when considering the penalties to be applied.

    It is likely that also in Israel, adopting and implementing an internal compliance program will assist in providing a better defense for directors and officers of companies accused of such offenses.

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Who’s Going To Protect The Limited Partners?

March 22nd, 2010

 

Posted By: Moty Ben Yona

 

The recent financial crises, on one hand, and the growth of private funds, on the other hand, have raised numerous calls for reduction of management fees and more efficient investor protection. Moreover, in order to reach such objectives there have been recently discussions in the U.S and in Europe about the need for regulation of private funds, primarily hedge funds.

Without addressing the question whether regulation of private funds is indeed necessary, it is obvious that a more efficient protection for the interests of the Limited Partners can be achieved by incorporating certain terms and conditions to the limited partnership agreements and the ancillary documents, which govern the relationships of the Limited Partners, the General Partner and the fund managers.

While the typical limited partnership agreements tend to be very long and contain hundreds of clauses, it is important to make sure that these agreements include certain terms and conditions, which are designated to align the interests of the Limited Partners and the General Partner. It is also important to make sure that the fund provides the Limited Partners with adequate transparency.

Below is a short outline of some of the issues required to be addressed prior to executing a subscription agreement by which a Limited Partner will make a solid commitment to invest in a private equity fund:

What is the term of the Fund?
It should be confirmed what is the term of the fund, as throughout such term management fees will be paid to the General Partner (subject to certain adjustments within such term). It is also advisable to take into account that the General partner is usually entitled to extend the fund for additional 1-2 years, at its sole discretion. Also, in most cases the term of the fund may be further extended with the consent of a majority in interest of the Limited Partners. In addition, it is advisable to confirm what is the duration of liquidation and whether the General Partner or the liquidator of the fund will be entitled to fees throughout such period of liquidation.  

What is the Capital Commitment provided by the General Partner?
It is recommended that the General Partner of the Fund will have a substantial capital commitment and a substantial equity interest in the fund. Naturally, while the General Partner invests its own money in the fund a strong alignment of interest with the Limited Partners can be reached. It is also suggested that such investment shall be made by the General Partner in cash rather than by means of waiver on management fees.

What is the method of the calculation of the Carried Interest?
Carried Interest is the share of profits that the General Partner receives as compensation. Traditionally, the amount of Carried Interest is set at around 20-25% of the fund’s annual profit. However, it is necessary to confirm how the Carried Interest is calculated. For instance, it is advisable to confirm whether the Carried Interest is calculated based on net profits or gross profits and whether the carried interest is calculated on an after tax basis.

What is the Structure of Management Fees?
It is advisable to ensure that the Management Fees are not excessive and that they are based on reasonable operating expenses. Also, it should be confirmed whether the management fees cover all the overhead and staff compensation as well as travel and other administrative expenses. It should be confirmed which expenses are not covered by the management fees and whether such expenses should be borne by the Partnership or by the General Partner. For instance, it should be discussed whether the general partner’s insurance will be borne by the Partnership or the General Partner itself. In this context it should be also confirmed whether the Limited Partners’ Advisory Committee has any rights to review the Partnership’s expenses on a periodic basis. It is also advisable to confirm whether the Management Fees are decreased significantly once the investment period is over.

Is there a Clawback Obligation?
A clawback obligation of the General Partner ensures that the General Partner will not keep distributions in excess of a certain percentage which was agreed upon in the Limited Partnership Agreement. The clawback provision will require the General Partner to repay the Limited Partners such amounts which were distributed in excess. To secure the clawback repayment by the General Partner, it is possible to require that the General Partner will maintain a “carry escrow account” with significant reserves to cover potential clawbacks.  

Are there any “No Fault” Clauses?
No fault clauses provide the Limited Partners with the right to demand changes in the operation of the fund upon majority in interest vote. “No Fault Divorce Clause”, for instance, provides the Limited Partners with the right to remove the General Partner of the fund and either terminate the fund or otherwise appoint a new General Partner. Such clause can be activated even if the General Partner is not in breach of the Limited Partnership Agreement, provided that the resolution for the removal of the General Partner was adopted by a special majority of the Limited Partners. Other “No Fault Clauses” provide the Limited Partners with the right to demand the suspension or the termination of the “Investment Period”, during which the General Partner invest the fund’s commitments.

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March 8th, 2010

Posted by: Gadi Ouzan  & Dani Rinot

Considering an investment or acquisition of Israeli company? 

FIRST MOVE: GO STRAIGHT AHEAD TO THE ISRAELI  REGISTRAR OF COMPANIES WEB SITE

If you want to obtain the basic information with respect to your target Israeli company, all you need to do is to browse to the Web Site of the . The Registrar maintains a computerized database which includes files on each Israeli company.

The main details mentioned in the Registrar’s report are the name and registration number of the company, names of the members of the board of directors, names of shareholders and list of all pledges created by the company on its assets.

Although the names of the board members and shareholders as reported to the Registrar are declarative in nature, the list of pledges has a constitutive nature. A pledge created by an Israeli company shall be considered valid vis-à-vis third parties, only upon its registration with the Registrar of Companies.

As a potential buyer of Israeli activity (whether assets owned by an Israeli company or shares of such company), you should review or instruct your advisor to review – not only the file of the target company, but also the files of its shareholders (where such shareholders are corporations). By reviewing the files of the target company you may discover that the potential assets are pledged to a third party by way of a fixed lien or a floating charge.

The search is not completed yet. By reviewing the files of the shareholders (the selling parties) you may find that the shares which are planned to be purchased are pledged to a third party by way of a fixed lien.

If no fixed lien is registered against the purchased shares, one should also ensure that there is no floating charge registered on the assets of the selling party. Under Israeli law, a floating charge usually applies to all assets of the selling party and such charge probably “covers” the purchased shares as well.

Just a reminder – the content of the Web Site and the files are in Hebrew so you should equip yourself with a Hebrew reader …

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Is Your Net Working?

March 4th, 2010

Posted By: Dr. Yuval Karniel

Social Media Policy (SMP) is becoming an essential tool for companies. While social media can drive business and support professional development, a policy will better protect the company from a legal standpoint.

The growth of social networks such as facebook, twitter, linkedin and others has created a new reality for both employers and their employees.

The line between the private, personal, and the public, between home and work, between one’s personal life and professional life are being blurred as never before. Many employees find themselves busy at work, answering emails, engaging in chats, forums and SMSes even when they are at home, during their free time or on weekends, and at the same time find themselves busy with personal and private matters on their own pages on the social networks even when they are on their computer at work.

Many employees surf the social networks and are even assisted by them in work related subjects. Friends at work are likely to be friends on these networks, and some of the work communication takes place, often without management’s knowledge, on the convenient and friendly social networks.

It is clear that this reality requires some type of evaluation by employers. On the one hand, this is a chance to strengthen the employees, and an opportunity for positive exposure for the organization and the brand that represents it. Many organizations try to market themselves on the social networks, but lose the opportunity to make use of the most important database that they have, which is the employees who are anyhow operating on these networks. This presents a tremendous opportunity to have the employees, or some of them, put to work on behalf of the company and the employer, in one of the most important components of its marketing and branding.

On the other hand, the presence of employees on these social networks poses a not so insignificant threat to their employers. The employee’s time spent on these networks means less time at work, and comes at the expense of work. Being on these networks can lead to disclosure of sensitive information by the employee about the employer, clients and their colleagues. In many cases the information is released without any awareness on the part of the employee who innocently shares information about his daily activity.  Recently, Microsoft Seattle was forced to dismiss one of its most senior employees who disclosed sensitive and confidential information about future developments of the company. The employee unintentionally shared information on Linked-in in which he is a member. A blogger who was methodically following activity by Microsoft employees immediately spotted the sensitive information, published it prominently on his website, and from there it was a small jump to the headlines of the financial papers.

Activity on social networks can expose employee and employer to lawsuits by parties who many be injured by such action, on grounds such as defamation, violation of privacy issues or copyright infringement.

It is important to state that this type of activity by employees, which expose their employers to lawsuits, can be done as well during the employee’s free time. Many workers identify themselves on social networks as a person who works at a specific place. Their professional identity is interwoven with their personal one and forms part of their profile on the internet. These employees may dispense advice, professional opinions, or may express their opinions which later may be attributed to their employer or corporation.

Employers need to recognize this situation and formulate clear policies to deal with it. The policies need to be made in conjunction with the employees and need to be transparent and public. Social Media Policy (SMP) is becoming an essential tool in management of personnel in the internet era. This policy itself also involves complex legal issues such as rights of employees, protection of privacy, protecting information, copyrights and defamation. The policy must therefore be formulated together with the marketing people, personnel and legal advisors.


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WHAT OPTIONS DO WOMEN HAVE?

February 22nd, 2010

Posted By: Hadas Raccah

Do international companies have absolute discretion in determining employees’ benefits? This is what the international high -tech company Comverse had in mind. Unfortunately reality proved otherwise.

Today we will discover what precautions international employers must take when negotiating employment terms and how can they avoid or at least reduce, the prospects of litigation brought against them, based on gender discrimination. International companies often adopt equity plans designated to stimulate their employees’ active interest in the success of the company. These plans including the actual equity provided to each employee are often subject to the discretion of the board of directors (usually of the parent foreign company). Is that So?

A recent Israeli National Labor Court ruling in Iris Ben- Moshe v. Comverse Ltd. will make it harder for international companies to exercise their absolute discretion in such circumstances.

According to the National Labor Court ruling a female employee was discriminated on the basis of gender due to the fact she wasn’t granted options to purchase common stock of the parent company, Comverse Inc., although male employees, employed in managerial positions parallel to her position, were granted with such option.

This ruling is innovative in the sense that for the first time the National Labor Court ruled that options shall also be considered an integral part of the employees’ remuneration for the purpose of determining discrimination based on the Male and Female Workers Equal Pay Law 5756- 1996 (the Equal Pay Law). The Equal Pay Law determines that male and female employees, employed by the same employer in the same workplace, are entitled to equal remuneration for the same work, for essentially equal work or for equivalent work.

In examining the National Labor Court’s decision and whilst implementing the guidance on what constitutes “unlawful discrimination” and what constitutes the relevant “comparison group” in the framework of a lawsuit based on the Equal Pay Law, it appears that international employers must reassure their equity plans do not include provisions which may give rise to discrimination claims based on gender Also, it might be worthwhile to encourage the persons responsible of determining the employees’ equity compensation to bear in mind, that their discretion in determining so, is not absolute.

It should be further noted that the “comparison group” for the purpose of determining discrimination based on the equal pay law is not necessarily a clear cut decision. For instance, in this case, Comverse’s attempt to broaden the “comparison group” was rejected. It should also be noted that the question whether an employee performed “work of equal value” for the purpose of the Equal Pay Law, will be examined by in-depth analysis of the nature of the work – including, inter alia, the skills, effort and responsibility required for the position as well the environmental conditions in which the work is performed. In other words- the question whether employees performed “work of equal value” may not be concluded on the basis of their remuneration, since said assumption (as argued by Comverse) will necessarily lead to a situation whereby it would be impossible to establish an entitlement to equal pay under the Equal Pay Law, for the comparison group will always include those receiving the same remuneration.

This case is a reminder to employers to give the honest reasons for differing employment benefits (including options) and not allow discrimination between men and women performing work of equal value- solely on the basis of gender differences.

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Lets Start Networking!

February 17th, 2010

Posted by: Yaacov Yisraeli

Today’s world is online, that is where professionals, clients friends and other curious people can connect, where business is done and where relevant information can be exchanged. We are privileged to be the first Israeli law firm to harness this amazing asset called social media and blogging in order to provide clients and friends with timely and relevant information in regards to cross border business transactions. 

Due to the increasing globalization phenomena of the world’s economy, the frequency and complexity of cross border transactions has grown. Although the world is becoming smaller, in the sense of information flow via internet, there is more information out there and a better business and cultural understanding is needed. Whether an Israeli client is seeking to establish or expand presence in a foreign market, or a foreign client is seeking business investments in Israel, there is more need than in the past for legal experience and expertise to avoid painful mistakes. 

This blog, titled Israeli Cross Border Transactions, raises important issues in various related topics that should enrich the business and cultural understanding, as well as practical information and up to date posts. The posts featured will allow our legal experts to share some of their knowledge and experience. Moreover, we are opening a communication channel that will enable us to better learn your needs, thus better answer your questions and help point you in the right direction when it comes to Israeli cross border transactions.

The blog is unique in a way that it will give you a better understanding of various aspects related to Israeli cross border transactions. Since it is the first of its kind, I would like to ask you to respond, provide us with your comments, share your thoughts and be an integral part of this communication stream.

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Is Tel Aviv on the Verge of Becoming Delaware?

February 16th, 2010

Additional comfort for foreign investors – the Israeli legislator is promoting the establishment of an “economic court” to focus on financial cases.

Posted by: Gadi Ouzan  & Dani Rinot

In an effort to improve enforcement of financial related cases in Israel, the Israeli legislator is attempting to establish an “economic court” aimed to address the complexity which very often accompanies cases of this sort. The Government of Israel has recently passed a Bill in first reading, pursuant to which an economic division will be established only within the District Court in Tel Aviv and will handle cases with an economic orientation. The economic division will be comprised of a permanent panel of judges which will preside over such cases, thus allowing them to acquire a sense of proficiency in this field.

Specifically, the “economic court” will focus on civil and criminal cases relating to securities laws, the Companies law, petitions and appeals on decisions of the Tel Aviv Stock Exchange, derivative actions, certain class actions, regulation of financial advisors, civil matters in relation to shareholders’ rights and duties, etc.

Among other reasons, this reform comes as a response to the recent acquittals in several securities cases, in connection to which critics have argued, were the result of the lack of expertise of certain judges in financial matters.

The expectation is that this novel court will create a preeminent proficiency of those judges in financial matters, and thus eventually lead to shortening the duration of judicial procedures, increase the credibility of the judicial system and ultimately enhance market efficiency.  Another aspired outcome is that the perfection of Israeli courts in financial disputes will mitigate some of the concerns of foreign investors from investing in Israel, similar to the affect the Delaware courts had on the State of Delaware turning to a corporate haven.

Although opposition to the establishment of the economic court is growing amongst justice officials, it still remains to be seen what the final legislation will entail and if it will succeed in improving financial enforceability in Israel.

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