Veto Power of Special Stockholders – part III | Beit Din Eretz Hemda - Gazit | Beit Midrash

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P'ninat Mishpat

קטגוריה משנית

Case: Reuven owns a company (both =pl) that holds the majority of special shares in the defendant company (=def) and sits on def’s board of directors (=bod). The body of special shares holders (=A-1) has veto power over major changes at def, as detailed in def’s charter. Def owns 100% of a subsidiary (=sbsd), which has signed a huge contract with a government agency to provide infrastructure for an area. Pl opposes the deal and wants it paused (leaving time to get the job done if applicable) at least until it can be determined if sbsd can finance the project without def providing the banks with collateral. If sbsd cannot manage without def, then pl can veto the deal through A-1. Def claims that breaking the contract with the government would be damaging both directly (500,000 NIS deposit) and indirectly (possible fines, loss of reputation, etc.), so that there is insufficient justification to freeze the project.

Ruling: [We saw last time that pl and A-1 do not have a direct right to veto sbsd’s decisions but that they did have the ability to prevent def from agreeing to the project. The remaining question is whether pl has lost that right.]

P'ninat Mishpat (777)

Beit Din Eretz Hemda - Gazit

735 - Veto Power of Special Stockholders – part II

736 - Veto Power of Special Stockholders – part III

737 - Dealing with Shortcomings of Building Project

The Shulchan Aruch and Rama (Even Ha’ezer 38:10) disagree if when one a man marries a woman on condition someone will not protest, and that person first agreed to the marriage and later protested, whether the marriage is valid. In the case that the condition was that the person be silent, the marriage is valid after initial silence. The Mishneh Lamelech (Shluchin 5:1) brings three opinions about a partner who acted without authority and the second partner found out later, whether the latter waives the ability to complain by silence, by agreement, or not even with agreement. Ashdot Hapisga (Choshen Mishpat 8) says it depends on the opinions whether silence relinquishes a monetary debt. Mishkenot Haro’im claims that if the silence comes before the questionable action was taken, all agree that it is subsequently too late to protest.

Our case should be equivalent to "on condition of silence," as it is illogical that one can be quiet on matters that effect third parties and protest later. If not, when would the limit to their protest power end?! This is relevant because, as discussed previously, there was no need for a positive decision in favor by A-1. The dayanim disagreed as to what the final moment for protest would have been. One dayan said it was at the time sbsd took part in the tender for the project, as backing out thereafter had consequences. The other dayanim said protest was still possible then, because there were several important unanswered questions at that point, so that there were another three months for A-1 to protest.

The two sides disagreed if during those three months, pl had acted in a way that left open the right to protest (the dayanim analyzed various correspondences), and no one brought valid proof. Therefore, we are to follow the status quo. In this case, pl is trying to change the status quo and prevent sbsd from carrying out its commitment. Therefore, pl cannot stop or even pause the project.

P'ninat Mishpat