On July 14, 2014 the Tel Aviv District Court rendered its decision with regard to an application filed in the case of Dayan v. Ganden Holdings Ltd., concerning IDB Holdings Corporation Ltd., formerly part of the consortium owned by business tycoon Nochi Dankner ("the Company"). The application revolved around the question of whether there remained a requirement for judicial approval of derivative claims once these had been adopted as claims of the Company by its trustees-in-bankruptcy (who in this case had been appointed as a consequence of liquidation proceedings involving the Company).
Under Israeli Law, derivative claims include a preliminary proceeding at which, inter alia, the court must be persuaded that the claim benefits the company. In the Dayan case, two applications for the approval of derivative claims had been filed in September 2012 and July 2013, claiming in respect of alleged prohibited distributions by the company.
Prior to the hearing of such applications, liquidation proceedings had been initiated against the Company, resulting in the appointment of the trustees. The trustees had filed an application for declaratory relief with the Court of Liquidation, claiming their entitlement to file claims in the name of the company, which application was subsequently granted.
On this basis, the trustees filed an application to the court hearing the applications for the approval of the derivative claims, claiming that in light of the declaratory judgment issued by the Court of Liquidation, the process for approval of the derivative claims was no longer necessary and that they should accordingly be allowed to adopt and continue conducting the claims.
The respondents (the Company’s directors and shareholders) contested the trustees’ arguments, claiming that: (a) the trustees did not have the right to file derivative claims in the company's name; (b) the trustees did not have the legal standing to assume the derivative claims, which could only be filed by a shareholder, director or creditor of the company; and (c) the trustees could not adopt the derivative claims without the court's express approval.
The Court ruled in favor of the trustees, noting that the reason that derivative claims require court approval is to avoid difficulties arising from conflicts of interest (since those who would decide whether to adopt the claim are potentially defendants thereunder). However, since the power to make decisions with respect to the filing of claims in the name of the Company had in this case been granted to the trustees, such conflict of interests was not present.
The Court rejected the respondents’ other claims as well, noting that: (a) the trustees' application was not to file a derivative claim, but to file claims in the Company's name, which they were in any event entitled to do; (b) in order for the derivative claims to be adopted as ordinary claims in the Company’s name, it would not be necessary to obtain the respondents' consent; and (c) there was no need to file a new claim since proceedings were already pending which the Company wished to adopt.
To conclude, the Court accepted the trustees' application and held that the claims would be deemed ordinary claims of the company and not derivative claims, obviating the need for the approval process.
