On November 21, 2024, the International Criminal Court issued arrest warrants against the then Israeli Prime Minister, Benjamin Netanyahu, and the former Israeli Defense Minister, Yoav Galant, extremely bizarre warrants accusing the State of Israel, which was the victim of an attempted genocide by Hamas on October 7, 2023, of a crime committed against it – warrants that are equivalent to issuing an arrest warrant against a raped woman for assault because she dared to resist and scratch her rapist – but warrants that also prove the obvious: someone who, instead of listening to their legal advisor and acting according to his instructions, prefers to attack him and the court, may find themselves accused of things they never did. The warrants are a stain on the court, which promotes terrorism instead of fighting it, but they are also an excellent example of how almost any possible legal and administrative error can be made.
No, this is not an article against Netanyahu’s sixth government (starting in December 2022, and including during the October 7 massacre) or against the attempted coup d’état, or – some would say – the attempted fascist coup, and no, this is not an article in favor of the legal authorities in Israel who are fighting against corruption while they are also forced to fight to preserve the State of Israel as a growing Western economy in a democratic state. This is an article on corporate law that explains the obvious: when a manager acts against the advice of legal advisors or without legal advice at all, his suitability for the position must be considered. When a manager tries to fire the legal advisor so that he does not interfere with him from doing his job, the suitability for the position must be carefully examined not only of the legal advisor (who certainly can and the manager is right and the advisor is not worthy of serving in the position) but also of the manager himself.
The Israeli Companies Law requires every company to appoint an auditor to audit its annual financial statements and to audit them. The law does not require the appointment of a lawyer, but instead requires directors to act with caution and in the best interest of the company, and by virtue of this duty, it can also be understood that they must receive appropriate legal advice. This becomes even more valid when managers or controlling shareholders in the company commit criminal offenses. For example,in January 2016, the Supreme Court rejected an appeal against a ruling that convicted officers in the Peled-Givoni Group after it was determined that not only did Rafael Peled not seek advice in a timely manner, but that even when he did seek advice, he “did not provide all the relevant information to the officers he consulted, including lawyers and accountants who worked for or advised the group.” In other words, it is not enough to consult, but the consultation must be genuine and complete, after providing the legal advisor with all the relevant information.
Committing criminal offenses due to failure to receive legal advice (and sometimes due to ignoring legal advice) of course places the manager at personal exposure – civil or criminal (includingwhen the manager does not make required decisionsor does not implement an internal enforcement plan that will ensure that managers and employees comply with the law – in a similar way to a prime minister who prefers to ignore calls for genocide by ministers in his government and ignore the recommendations of the legal advice to the government on how to act to avoid international arrest warrants, for example by establishing a state investigation committee), but more importantly, it also places the corporation at risk (and for example, the orders of the Hague Tribunal are not only a personal stain on Benjamin Netanyahu but on the State of Israel). For example,in 2007 the Supreme Court convicted not only Tnuva CEO Yitzhak Landsman, but also the corporation itself, of antitrust offenses, and rejected the claim that they acted in accordance with legal advice, because in order for legal advice to constitute a defense, it must be based on the full relevant factual infrastructure; a person seeking expert advice must contact a lawyer with expertise in the field; the legal advice must be serious in its appearance; it is appropriate that the opinion should generally be in writing, and above all, the legal opinion will only assist in protecting the company and its managers if it acted in good faith and in accordance with the instructions of the legal advice and did not ignore them.
In conclusion, legal advice is sometimes a factor that seems disruptive, but good advice can not only create value for the company (by building the right business structures, which is why it is important for a business to always be accompanied by legal counsel with expertise in mergers and acquisitions) but also prevent malfunctions that will not only harm the value of the corporation, but may also create personal liability – criminal or civil – for managers.
Published in Legal Channel 428 11.12.2024 Afik & Co. https://he.afiklaw.com/
