Be Careful What You Wish for: How Progress Engendered Regression in Related Party Transaction Regulation in Israel

37 Pages Posted: 19 Jan 2018

See all articles by Amir N. Licht

Amir N. Licht

Interdisciplinary Center (IDC) Herzliyah - Radzyner School of Law; European Corporate Governance Institute (ECGI)

Date Written: January 2018

Abstract

The regulation of related party transactions (RPTs) is today the single most important yardstick for the quality of corporate governance systems. It is also one of the thorniest issues because RPTs are a well-documented cause of abuse by corporate insiders, yet they could be valuable and sometimes simply inevitable. This paper analyzes reform measures adopted in Israel with a view to improving corporate governance in general and RPT regulation in particular. Whereas one set of measures revolved around procedural safeguards based on disinterested informed approval (a property-like rule), another set purported to establish a Delaware-like business court that would implement an “entire fairness” review (a liability-like rule). The latter trend came to dominate the former notwithstanding applicable statutory and case law, thus engendering regression instead of progress in RPT regulation. This case suggests lessons for law makers, be they judges or legislators, who contemplate mimicking the “corporate capital of the world”.

Keywords: corporate governance, related party transactions, fiduciary duties, property rule, liability rule, specialized court

JEL Classification: K22

Suggested Citation

Licht, Amir N., Be Careful What You Wish for: How Progress Engendered Regression in Related Party Transaction Regulation in Israel (January 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 382/2018. Available at SSRN: https://ssrn.com/abstract=3104062 or http://dx.doi.org/10.2139/ssrn.3104062

Amir N. Licht (Contact Author)

Interdisciplinary Center (IDC) Herzliyah - Radzyner School of Law ( email )

P.O. Box 167
Herzliya, 46150
Israel
972-9-952-7332 (Phone)
952-9-9513323 (Fax)

European Corporate Governance Institute (ECGI)

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Belgium
952-9-9513323 (Fax)

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