Representative Action and Company Law

In recent years, as the economy has become more and more complex, the use of the tool of representative actions, including actions against corporate officers, has increased.

A class action, pursuant to the Companies Law, is a lawsuit that any shareholder or director of a company may file, if all the requirements of the class action are satisfied. The remedy that will be granted belongs to the company. The plaintiff is remunerated if his claim is successful, because it is reasonable to assume that otherwise he would not have filed the proceeding. In addition, there is a possibility of partial financing and the payment of the expenses of the claim by the Israel Securities Authority and by the company.

The premise in a representative action is that if the right of action belongs to the company, the action should be filed by the company. The ability to file a derivative action is an exception that seeks to strike a balance between the fact that directors and managers of a company often cannot reasonably be expected to file a claim and the fact that shareholders will often file claims for their own business reasons and therefore the ability to file a derivative action should be restricted.

A derivative action can relate to any right of action that the company has, not only ones against the controlling shareholders and officers.