For years, the large number of inactive private companies remaining on Israel’s Companies Registrar has burdened the integrity and reliability of the register. On September 15, 2024, Amendment No. 37 to the Companies Law, 5759-1999, was published, granting the Registrar new authority to strike off inactive private companies that are not bond-issuing companies and have not been voluntarily wound up by their shareholders. The amendment sets out a graduated mechanism involving cumulative conditions, advance notice, and an opportunity to object before removal takes effect.
On September 15, 2024, Amendment No. 37 to the Companies Law, 5759-1999 (the “Law”), was published. The amendment grants the Companies Registrar the authority to remove from the companies register private companies that are inactive and are not bond-issuing companies, and that have not been wound up by their shareholders. As stated in the explanatory notes to the amendment, its purpose is to improve the companies register by removing inactive companies.
The Companies Registrar may remove a company from the register if it finds that all of the following cumulative conditions are met with respect to the company:
It should be noted that these conditions also apply to public benefit companies, subject to the consent of the Registrar of Endowments to the removal, and without the need to satisfy the condition set out in item 3 above.
Where the conditions in items 3 to 5 above for removing a company are met, and the Registrar has reasonable grounds to believe that the conditions listed in items 1 and 2 above are also met, the Registrar may publish a notice on the Ministry of Justice website of its intention to remove the company. In addition, a notice will be sent to the company’s registered address. It should be noted that the Registrar also has the authority, in certain circumstances, to request information to establish whether such conditions are met, from banking corporations and certain public bodies, including the Israel Tax Authority, the Land Registrar, and others. Following publication of the notice on the Ministry of Justice website, anyone who may be harmed by the company’s removal may file an objection with the Registrar within 90 days of the publication date. If no objection is filed, or if an objection filed is rejected, and 90 days have passed from the date the Registrar’s notice was published, the Registrar may remove the company from the register.
From the date of a company’s removal, the company will be deemed dissolved. However, removal does not preclude the possibility of voluntary winding-up of the company or the court’s authority to wind up the company under any law.
Dissolution of the company as a result of its removal does not derogate from the liability of shareholders or officers under sections 192 and 193 or 252 to 254 of the Law, as applicable, that had crystallized prior to the company’s removal (including the officers’ duty of care and duty of loyalty).
The amendment allows the Companies Registrar to reverse a company’s removal and restore it to the register, within one year of the removal date, on its own initiative or at the request of an interested party harmed by the company’s dissolution as a result of the removal, if it is found that the required conditions were not met at the time of removal and the company has not yet been dissolved following a winding-up.
In addition, the court has the authority to reverse a removal, up to 20 years from the removal date, in accordance with and subject to the conditions set out in the Law in this regard.
Following reversal of the removal, the company will be restored to the companies register and will be treated as though it had continued its business and activity and had not been removed from the register.
In summary, the amendment grants the Companies Registrar the authority to remove inactive private companies from Israel’s companies register, in order to improve the register. In light of this authority, alongside additional powers such as the imposition of financial sanctions and other restrictions on companies in breach, and the large number of inactive companies, it is advisable, in appropriate cases, to consider the voluntary winding-up of inactive companies through an orderly process initiated by the shareholders, in order to avoid removal proceedings, sanctions, and other restrictions that the Registrar may impose in certain circumstances.
We would be happy to assist with any questions or clarifications regarding this amendment and its impact on your business activity.
