In light of the recent judgment of Judge Ofer Grosskopf in T.A. (Merkaz) 47032-05-16 Better Place (H.T.) 2009 Ltd. (In liquidation) and Others V. Shay Agassi and Others ("Better Place V. Agassi") – Where Judge Gorskof approved a motion to dismiss by Better Place former Directors and Officers ("D&Os") arises the question can D&Os now take management risks without being afraid of being legally liable for their managing decisions?
Summary:
Better Place V. Agassi was brought to Merkaz district court in Lod by Better Place's Liquidator against the former D&Os of the company claiming that they were negligence and even reckless in the way they have managed the company, therefore they have full responsibility for Better Place getting into insolvency procedures. The liquidator's filled acclaim total of 200,000,000NIS.
The D&Os defense was an attack – They have filed a motion to dismiss. They have argued that due to the Business Judgment Rule ("BJR") that was adopted not long ago into the Israeli law from the American corporate law; the court shouldn’t interfere in D&O's managing decisions when it was made in good faith, in a conscious way and with no conflict of interest. If the plaintiff fails to show that the way the decision was not made according to the BJR conditions than the claim should be dismissed.
Judge Grosskopf approved the defendants' arguments and dismissed the claim. In addition, Judge Grosskopf explained that especially when it comes to startup companies D&Os have to take managing risks in order for the company to succeed therefore D&Os shouldn’t be liable for taking risks where the decisions made were According to the BJR.
This judgment has a major influence in the legal industry as it clarifies the legal liability of D&Os. But let's not forget that in order to defend such a claim the D&Os had to hire lawyers. Today legal expanses average rate in Israel is about $220,000 (In the USA it’s about triple) for a full litigation procedure that includes only representation fees and does not include other expenses as court fee, expert witnesses, etc. In Better Place V. Agassi there were 19 D&Os sued most of them were represented by separate lawyers. That means that the D&Os paid about $4,500,000 in the aggregate only for legal representation.
In conclusion
Better Place V. Agassi clarifies the legal liability of D&O's and is a very important and in my opinion a right judgment. However, in reality, D&Os still have a lot of expenses when handling such a claim. Therefore, the solution is to purchase A D&O insurance which covers such claims and legal expenses and may save D&Os thousands and even millions of dollars in case of a claim brought against them.
