Court Rulings Highlight Ongoing External Director Battles at Israeli Firms
Supreme Court dismisses appeal over Avarot's external directors, allowing former MK Ayelet Nahmias-Verbin to serve, while Polygon faces prolonged legal deadlock.
The legal battle over the appointment of external directors has concluded at infrastructure company Avarot, while it continues at real estate firm Polygon. In both companies, a dispute has erupted between controlling shareholders and other shareholders regarding the appointment of external directors, with one case reaching a judicial ruling while the other remains tangled in intense litigation.
Supreme Court Justice David Mintz dismissed an appeal request filed by Gabi Magazi, the former controlling shareholder of Avarot who currently holds 28% of its shares. Following the judge's decision, former Knesset member Ayelet Nahmias-Verbin will be able to continue serving as an external director at the company, after being appointed to the post through the intervention of the District Court a few weeks ago, a decision Magazi sought to appeal.
A long-standing conflict has persisted between Magazi, Avarot, and its current controlling shareholder, Shapir Engineering. Magazi has repeatedly leveraged his status as the primary minority shareholder to oppose proposed external director candidates, the terms of office for CEO Alex Kagan, the company's compensation policy, and business dealings with Shapir. Last year, the court intervened and established a mechanism for appointing external directors, which lasted for exactly one vote held last December.
In July of this year, after the company was left with only a single serving external director, the parties resumed their confrontation, prompting Avarot to petition the court for a second intervention. Tel Aviv District Court Judge Ariel Zimmerman granted the company's request and authorized overriding Magazi's opposition to the appointment of Nahmias-Verbin. Magazi's subsequent appeal of this decision was the one dismissed by the Supreme Court.
While Justice Mintz's ruling brings an end—at least for an interim period—to the external director saga at Avarot, the saga continues at Polygon, controlled by Kobi Maimon. Polygon has operated for over a year and two months entirely without external directors, thereby violating the law. This situation persists because minority shareholders and the company itself have long opposed the candidates proposed by each respective side.
In August, Polygon petitioned the court, demanding intervention in the dispute with minority shareholders to secure the appointment of external directors. As part of this, the company sought temporary injunctions to facilitate immediate appointments. However, the minority shareholders named in the lawsuit strongly oppose these measures.
In its court filing, represented by attorneys Liran Bar-Shalom and Tomer Fox from the Meitar law firm, Polygon claimed that one of the defendants, Aharon Cohen, is acting "with the intent to harm the company, from personal, extraneous, and improper motives." The company asked for judicial intervention because "the company has no way to extricate itself from the situation it has fallen into" amid ongoing disagreements over external director appointments.
The defendant shareholders, represented by attorney Golan Keshi, launched sharp criticism in their response submitted to the court. They argued that Maimon, Polygon's controlling shareholder, "exploits the apathy of the regulator (the Israel Securities Authority) and the weak enforcement capacity available to minority shareholders." They further claimed that the incumbent directors are neglecting the company's assets and failing to maximize its value, and that corporate governance officers are serving the controller's interests rather than their duties.
The Legal and Financial Stakes at Polygon
The defendants rejected Polygon's allegations against Cohen, explaining that the unanimous support he received from other minority shareholders during general meetings demonstrates their belief that he acts in the company's best interest. They also noted that holding only 3.6% of the company's shares gives him no unilateral ability to veto external director candidates.
The response detailed that Polygon approved its financial statements for the first half of 2025 not only without sitting external directors—thus violating the law—but also with an incomplete board composition, breaching company bylaws. Furthermore, the defendants alleged that the company is "dragging its feet in a lawsuit against Nitzba due to the interests of the controlling shareholders," noting that Maimon also serves as the CEO and controlling shareholder of Nitzba.
This legal action stems from a derivative lawsuit request filed by Cohen in 2024 regarding Nitzba's use of land owned by Polygon without paying compensation. The defendants argue that Maimon breached his duty of fairness by opposing minority-nominated external director candidates, given that external directors are precisely the officials meant to oversee the litigation against Nitzba, which is under Maimon's control.
