Client Update | New Substantial Reliefs for Israeli Companies Traded Abroad

On March 12, 2024, a new amendment to the Companies Regulations (Reliefs for Companies Whose Securities are Listed on Stock Exchanges Outside of Israel), 2000 (the “Amended Regulations”) was published. The Amended Regulations, which became effective immediately, introduce new reliefs from various requirements of the Israeli Companies Law, 1999 (“ICL”) to “Foreign Companies” (Israeli companies with securities traded only on foreign stock exchanges) and “Dual Companies” (Israeli companies traded on both the Tel Aviv Stock Exchange and certain foreign stock exchanges specified in the Amended Regulations).
The key reliefs under the Amended Regulations, many of which are now available to both Foreign Companies and Dual Companies (collectively, “Foreign Traded Companies”), include the following:

• Shareholder Proposal Relating to Appointment or Removal of Directors: The Amended Regulations increase the minimum ownership threshold required under Section 66 of the ICL for shareholders of Foreign Traded Companies to demand including proposals relating to the nomination of a candidate to serve on the board of directors (or the removal of a director) on the agenda of shareholder meetings from 1% to 5% of the voting rights at the meeting.
• Right of Shareholders to Convene a Special Meeting: The Amended Regulations increase the minimum threshold required under Section 63 of the ICL for shareholders of Foreign Traded Companies to demand that a board of directors convene a special meeting from (1) either 5% or more of the company’s outstanding shares and 1% or more of the company’s outstanding voting power, or 5% or more of the company’s outstanding voting power, to (2) either 10% or more of the company’s outstanding shares and 1% or more of the company’s outstanding voting power, or 10% or more of the company’s outstanding voting power, except that, if the “Foreign Jurisdiction Law” (as defined in the Amended Regulations) requires a minimum ownership threshold of less than 10%, the existing 5% threshold described in clause (1) will continue to apply.
• Material Private Placements: Section 274 of the ICL requires shareholder approval for “Material Private Placements” (as defined in the ICL). The Amended Regulations (1) expand the existing relief from this requirement to also apply to Dual Companies but (2) narrow the exemption to provide that it only applies to Foreign Traded Companies which comply with the approval requirements for private placements under the Foreign Jurisdiction Law that apply to domestic companies.
• Buyback Programs: The ICL provides that an Israeli company must meet both a “profit test” and a “solvency test” in order to make distributions, including payment of dividends and “acquisitions” (generally, repurchasing shares from shareholders as part of a buyback program). If the company meets only the solvency test, it must obtain court approval prior to making a distribution. The Amended Regulations allow Foreign Traded Companies to only meet the solvency test, without the need to obtain court approval, if, among other things, (1) the distribution is in order to make an acquisition and (2) the company notifies its creditors of the proposed acquisition and allows such creditors an opportunity to initiate a court proceeding to review the acquisition within 30 days thereafter.
• Expansion of Exemptions: The Amended Regulations provide that certain exemptions from requirements of the ICL that previously applied only (1) to companies traded on specified stock exchanges, now apply to all Foreign Companies, and (2) to certain Foreign Companies, now apply to Dual Companies. This includes the exemption for companies (that meet certain criteria, including lack of a controlling shareholder) from the need to comply with the ICL’s requirements relating to appointment of statutory external directors and to composition of the audit and compensation committees that are now available to both Foreign and Dual Companies.
  Other, more technical in nature, amendments introduced by the Amended Regulations include reliefs that are related, among other things, to the voting procedures in Foreign Traded Companies (such as the method by which shareholders should indicate whether they have a “personal interest”, as defined in the ICL, in the applicable resolutions at the shareholders meetings); the record date for shareholders meetings of Foreign Traded Companies (extending it from 4 to 40 days prior to the meeting to 4 to 60 days prior to the meeting); as well as the need for Foreign Traded Companies to make certain filings with the Israel Companies Registry.