Court Strips Shareholder's Veto Power in Unusual Ruling
In a highly unusual move, the Tel Aviv District Court last week revoked a shareholder's veto power in a dispute between controlling shareholders of Avrat Industries Ltd. The dramatic decision came amid a year-long battle for control of the publicly traded company, where Shapir Engineering, holding 55% of the shares, and significant shareholder Gabriel Magnezi, who controls an additional 28% through Magnezi Industries, are on opposing sides.
The core of the conflict lies in a deadlock where both parties held veto rights over the appointment of an external director, and each used their power to block the other's nominee. This stalemate paralyzed the company's management processes. To break the impasse, the court appointed former Knesset member Ayelet Nahmias-Verbin as an independent director, overriding Magnezi's vote and effectively removing his ability to block the appointment.
The court explained that when one party is determined to ensure their candidate is chosen, despite a duty of fairness, there is "no way out." Therefore, "in a situation where there is a potential breach of the duty of fairness by either party with the deciding vote, there is no choice but to resort to an alternative mechanism." This intervention aims to rescue the company from the deadlock that has harmed its business operations.
This is not the first time disputes between Shapir and Magnezi have reached the courts. In September 2025, a similar struggle over appointing an external director led to failed attempts, prompting Avrat to seek court intervention. Magnezi argued his opposition was baseless, while Avrat contended he was acting as an "adversarial party" to Shapir. A previous court proposal involved an appointment committee and the Israel Directors Association, allowing each major shareholder to veto two candidates, but this mechanism also failed to resolve the issue for a subsequent director appointment.
The court acknowledged that disqualifying a shareholder's vote is not a trivial matter, noting the absence of a legal solution for such deadlocks. The ruling aims to balance the power between feuding shareholders, preventing one side from imposing an unsuitable director while also stopping the minority from blocking a director for the majority shareholder. The court suggested that such issues require legislative attention, but in the interim, alternative mechanisms are necessary when fairness duties are potentially breached.
Both parties have expressed strong reactions. Avrat Industries stated the court's decision highlights the importance of corporate governance and expressed confidence it will withstand an appeal. Gabriel Magnezi, however, sharply disagreed, calling the ruling a "neutralization" of a minority shareholder's vote and intends to appeal.
