New Regulations to Curb Misconduct in Kibbutzim and Moshavim

Israel's Registrar of Cooperative Societies has introduced a new directive aimed at regulating transactions within kibbutzim and moshavim, following numerous complaints of mismanagement and self-dealing. The new rules mandate that all real estate transactions, and any deal deemed 'substantial', including those involving board members or significant financial sums, must receive approval from a general assembly of members before being finalized. This move is intended to prevent the circumvention of approval processes through 'deal splitting' and to ensure transparency.

The directive was prompted by thousands of annual complaints received by the Registrar's office, with about half concerning real estate dealings. Many of these complaints highlighted a lack of organized procedures and transparency, leading to instances where board members allegedly benefited personally or engaged in deals detrimental to the cooperative societies. Examples cited include leasing property at significantly below-market rates, leading to millions in losses, and approving large projects without member consent, resulting in legal disputes and financial damage.

Key provisions of the new regulations include the mandatory submission of proposed agreements for member review prior to assembly approval. Furthermore, a 'transaction file' must be maintained for every deal, open for member inspection and containing details such as price quotes and comparative analyses. The directive also addresses conflicts of interest, requiring individuals with a personal stake in a transaction to disclose it and recuse themselves from discussions and voting. Additionally, close relatives of board members are prohibited from serving in key financial or auditing roles within the same cooperative.

Advocate Tali Arfi, the Registrar of Cooperative Societies, stated that while cooperative societies are not subject to mandatory tender laws, existing reporting obligations to members are now being clarified and enforced. She emphasized that the new rules aim to bring order to transaction management and make it harder to evade responsibility. Arfi also noted that the directive was developed in consultation with representatives from the kibbutz and moshav movements, with exceptions made for routine, ongoing operational expenditures to avoid unnecessary bureaucracy.