Israeli Courts Use Forced Buyouts to Resolve Deadlock Among Private Company Shareholders
Shareholder disputes in private companies can sometimes be resolved through business decisions or amended agreements. However, when shareholders can no longer make basic decisions together, courts may determine the problem is structural and require separation of ownership. Under Section 191 of the Israeli Companies Law, courts have broad authority to intervene when shareholder oppression occurs or is feared, enabling mechanisms like forced buyouts, Buy Me Buy You (BMBY), internal auctions, or third-party sales.
These separation tools are especially relevant in private or family companies with few shareholders involved in management, where selling shares on an open market is not feasible. Forced buyouts involve a court order for one shareholder to purchase another’s shares at a value set by an expert, considering company assets, liabilities, financial data, and the dispute’s impact on value. This method suits cases where it is clear who will continue managing the company or when a shareholder is oppressed and deserves a fair exit.
The BMBY mechanism allows one party to propose a price for shares, and the other must either sell or buy at that price, encouraging balanced offers. However, BMBY may be unsuitable when there are significant economic power imbalances or information asymmetries. Courts carefully assess whether it is appropriate in each case.
Internal auctions can resolve deadlocks between shareholders of equal power by having them bid for each other’s shares. If internal solutions fail or risk perpetuating imbalances, selling to a third party is considered, with proceeds distributed according to ownership rights after debts and expenses. Although liquidation is a last resort, courts prefer solutions that preserve company value and continuity.
Ultimately, courts evaluate whether oppression occurred, the deadlock’s nature, control and information disparities, and which solution minimizes harm to the company’s value. The focus is not only on who is right but on how to separate shareholders fairly and efficiently to allow the company to continue operating.
