Business Judgment Rule

In a significant judgment, the Israeli Supreme Court has held that a modified form of Delaware's Business Judgment Rule, which limits judicial intervention in corporate management decisions, is now part of Israeli corporate law.

The present case was an appeal of a ruling of the District Court of Tel Aviv (Economic Division) ("Lower Court"), in which the Lower Court rejected a request for approval of a derivative action against the officers and controlling shareholder of a public company ("Company") in connection with the distribution of dividends ("Distributions"). The Distributions occurred following the leveraged acquisition of a controlling interest in the Company and were based upon the Company's cash profits, accounting profits, and a court-approved capital reduction. The Company incurred loans to fund the payment of the full amount of the Distributions. The petitioners alleged that the Distributions benefitted the controlling shareholder at the expense of the