A deep conflict has erupted between the shareholders of a fintech company owned by two shareholders who serve as directors. The parties have not reached an agreement on a separation mechanism, but in the meantime, the lack of cooperation has paralyzed the board of directors to the point that one of the shareholders has requested that the other be removed from the board of directors and be prohibited from voting on it.
The court granted the request and prohibited one of the directors from attending or voting at the meetings. A shareholder in a “quasi-partnership” company has a substantial right to appoint a director and participate in the management of the company and the board of directors, but this right does not grant the shareholder full immunity from the removal of the director on his behalf. In the event of a shareholder dispute in the company, and even before a decision is made on the separation mechanism, the court may take actions that will preserve the functioning of the company and ensure that it survives until decisions are made in its case. These actions also include, in extreme cases, removing a director from his position and prohibiting him from participating in the board of directors, where his behavior violates the duty of trust imposed on him and is likely to harm the company and cause it damage. This is also true in the case of a company operating in the format of a quasi-partnership, where such removal has a substantial impact on the ability of the “partner” to influence the conduct of the company. Here, the director’s behavior was unusual and extreme, including threats to office holders, violence, and surveillance of the other director, and it is clear that he did everything in his power to disrupt and thwart the company’s operations in a manner that constitutes a breach of his fiduciary duty and justifies his removal from the board of directors. Therefore, the shareholder was prohibited from attending board meetings, participating in them, or voting as a director, and instead was only allowed to appoint an observer without voting rights.
