Israel Company Law 1999

Article C: Exemption, Indemnification and Insurance

258. (a) A company may not exempt an office holder from liability for breach of his fiduciary duty towards it.

Authority of company to grant

(b) A company may exempt an office holder from liability for breach of his duty of care towards it only in accordance with the provisions of this chapter.

(c) A company may indemnify or insure the liability of an office holder only in accordance with the provisions of this Chapter.

exemption, indemnification and insurance

259. A company may exempt in advance an office holder from liability in whole or in part, for damage flowing from breach of his duty of care towards it, if a provision to that effect is laid down in the articles of association.

Authorization to grant exemption

260. (a) A company may, if one of the provisions specified in subsection (b) is laid down in the articles of association, indemnify an office holder for debts or expenses as specified in paragraphs (1) and (2) imposed upon such office holder due to an act done by virtue of his being an office holder of the company:

1) a financial liability imposed upon him for the benefit of another person pursuant to a judgment, including a judgment given in the matter of a compromise or an arbitral award approved by the court;

2) reasonable litigation expenses, including attorney’s fees, incurred by the office holder or charged to him by the court, in a proceeding filed against him by or on behalf of the company or by any other person, or for a criminal charge from which he was acquitted or for a criminal charge in which he was found guilty of an offense not requiring proof of criminal intent.

(b) A provision in the articles of association regarding indemnity may be one of the following:

1) a provision permitting the company to give an undertaking in advance to indemnify its office holder, provided that such undertaking be limited to types of events that in the opinion of the board of directors can be foreseen at the time of granting the undertaking to indemnify, and to a sum determined by the board of directors as reasonable in the circumstances of the case (hereinafter an “indemnity undertaking”);

2) a provision permitting the company to indemnify its office holder ex post facto (hereinafter “authorization for indemnity”).

Permission regarding indemnity

261. A company may, if an appropriate provision has been laid down in the articles of association, enter into a contract to insure the liability of an office holder therein for obligation imposed upon him due to an act performed by him by virtue of his being an office holder, in any of the following instances:

(1) breach of duty of care towards the company or towards any other person;

(2) breach of fiduciary duty towards the company, provided that the office holder acted in good faith and had reasonable foundation for presuming that the act would not harm the good of the company;

(3) a financial liability imposed upon him for the benefit of another person.

Liability insurance

262. (a) In a private company the shares of which are divided into classes, the resolution to include a provision in the articles of association regarding an exemption or indemnity shall require the approval of a class meeting in addition to the approval of the general meeting.

(b) In a public company in which an office holder is a holder of control as defined in section 268, the resolution of the general meeting to include a provision in the articles of association regarding an exemption, indemnity or insurance shall require the approval of shareholders who do not have personal interests in the approval of the resolution, as required for an extraordinary transaction, pursuant to the provisions of section 275(3)(a), in addition to the majority required for alteration of the articles of association.

Alteration of articles of association

263. Neither a provision of the articles of association permitting the company to enter into a contract to insure the liability of an office holder, nor a provision in the articles of association or a resolution of the board of directors permitting the indemnification of an office holder, nor a provision in the articles of association exempting an office holder from liability towards the company shall be valid, where such insurance, indemnification or exemption relates to one of the following:

(1) breach of fiduciary duty, other than as provided in section 261(3);

(2) breach of a duty of care committed intentionally or recklessly;

(3) an act done with intent to make unlawful personal profit;

(4) a fine or forfeit imposed upon such office holder.

Invalid provisions

264. (a) A provision in the articles of association or in a contract or stipulated in any other manner purporting to contract out of the provisions of this article, directly or indirectly, shall be invalid.

(b) An undertaking to indemnify or to insure the liability of an office holder due to the breach of a fiduciary duty towards the company shall not be valid, nor shall an office holder accept, directly or indirectly, such an undertaking; receiving such an undertaking shall constitute a breach of fiduciary duty.

No contracting out