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252. (a) An officer owes the company a duty of care, as provided in sections 35 and 36 of Torts Ordinance (New Version).

(b) The provision of subsection (a) will not derogate from an officer's duty of care toward any other person.

Duty of Care

253. An officer will act at a level of skill at which a reasonable officer would have acted in the same position and under the same circumstances, and by adopting means that are the reasonable means under the circumstances of the case to obtain information on the profitability of the act brought to him for his decision or of the act performed by him by virtue of his position, and to obtain any other information of importance for the said acts.

Means of Care and Level of Skill 

253. A. The appointment of an officer with expertise in accounting and finance or who has professional skills in accordance with Sections 219(d) or 240 (a1) will not alter the duty imposed by any law upon him and upon the other officers of the company by law.

Duty of Care of Officer with Expertise or Skills (amended 2005)

254. (a) An officer owes a fiduciary duty to the company, will act in good faith and will act to its benefit, and he will -

(1) refrain from any act that involves a conflict of interests between the performance of his function in the company and his performance of any other function or his personal affairs;

(2) refrain from any activity that involves competition with the company's business;

(3) refrain from exploiting a business opportunity of the company in order to obtain a benefit for himself or any other person;

(4) disclose to the company any information and deliver to it any document that relates to its affairs, which came into his possession by virtue of his position in the company;

(b) The provisions of subsection (a) will not derogate from any fiduciary duty of the officer toward any other person.

Fiduciary Duty

255. (a) A company may approve any of the acts mentioned in section 254(a), provided that all the following conditions have been met:

(1) the officer acts in good faith and the act or its approval do not harm the company's interests;

(2) the officer disclosed to the company the nature of his personal interest in the act - including all material facts and documents - at a reasonable time before the approval was discussed.

(b) The company's approval of acts that are not material acts will be given under the provisions of Chapter Five concerning transactions approval, and the company's approval of material acts will be given under the provisions of Chapter Five concerning exceptional transactions approval; the provisions of Chapter Five on the validity of transactions will apply to the validity of acts, mutatis mutandis.

Approval of Acts

256. (a) The Laws that apply to breach of contract will apply to a breach of fiduciary duty of an officer towards the company, mutatis mutandis.

(b) Without derogating from the generality of the provision of subsection (a), an officer who committed breach of fiduciary duty against the company will be deemed as a person who breached his contract with the company.

(c) A company may cancel an act performed by an officer in the company's name toward another person or demand from that other person the compensation due to it from the officer, even without cancellation of the act, if that person knew of the officer's breach of fiduciary duty toward the company, and if he knew or should have known that the act had not been approved.

(d) If a person received the approval of the Board of Directors that all the necessary approvals of the act had been given, then it is assumed that he need not have known that the approval of the act, as required under this Chapter, was missing.

Remedies

257. If a Director learns of any matter of the company in which, prima facia, violations of Law or breach of orderly business practice were discovered, then he will act without delay to convene a Board of Directors meeting, as provided in section 98(b)(2).

Disclosure of a Defect

258. (a) A company may not grant any of its officers exemption from his responsibility for a breach of fiduciary duty toward it.

(b) A company may grant an officer exemption from his responsibility for a breach of the duty of care toward it only in accordance with the provisions of this Chapter.

(c) A company may insure the responsibility of its officer or indemnify him only in accordance with the provisions of this Chapter.

Company's Power to Grant Exemption, Indemnification and Insurance

259. (a) A company may, in advance, give an exemption to one of its officers from his liability in whole or in part for damage due to his violation of the duty of care toward it, if there is a provision to that effect in the company's Articles of Association.

(b) Notwithstanding the provisions of Subsection (a), the company may not, in advance, exempt its officer from his responsibility towards the company for breach of duty of care in a distribution.

Authorization to Grant an Exemption (amended 2005)

260 . (a) If the company's Articles of Association include one of the provisions specified in subsection (b), then it may indemnify its officer in respect of a liability or expense specified in paragraphs (1), (1a) and (2) which was imposed on him or which he incurred due to an act which he performed by virtue of being an officer therein:

(1) a monetary liability imposed on him by a judgment in favor of another person, including a judgment imposed on him in a compromise or in an arbitrator's award which was approved by a Court;

(1a) reasonable legal expenses, including attorney's fees, incurred by an officer as a result of an investigation or proceeding conducted against the officer by an entity authorized to conduct such investigation or proceeding, and which were concluded with no indictment filed against the officer and without monetary liability being imposed upon the officer as an alternative to a criminal proceeding, or were concluded without an indictment being filed against the officer but with monetary liability imposed as an alternative to a criminal proceeding in an offence which does not require proof of criminal intent; in this paragraph-

Conclusion of proceedings without an indictment being filed in a matter for which a criminal investigation was instigated - will mean closing of the file in accordance with Section 62 to the Criminal Procedure Law [Combined Version] - 1982 (in this subsection - the Criminal Procedure Law), or stay of proceedings by the Attorney General under Section 231 of the Criminal Procedure Law;

"monetary liability as an alternative to criminal proceeding" - monetary liability imposed by the law as an alternative to a "criminal proceeding", including administrative fine according to the Law of Administrative Offences - 1985, fines for an offence defined as a finable offence under the Law of Criminal Procedure, monetary sanction or ransom;

(2) reasonable legal expenses, including attorneys' fees, which the officer incurred or which were imposed by the Court, in a proceeding brought against him by the company, in its name or by another person, or in a criminal indictment of which he was acquitted, or in a criminal prosecution in which he was convicted of an offence that does not require proof of criminal intent.

(b) The provision on indemnification in the Articles of Association can be each of the following:

(1) a provision which permits the company to give an undertaking in advance that it will indemnify its officer; in each of these (in this law - undertaking to indemnify) -

(a) As detailed in subsection a(1), and provided that to the undertaking to indemnify be limited to occurrences which in the opinion of the Board of Directors, are expected in light of the company's actual activities at the time in which the undertaking to indemnify was granted and in an amount or to an extent determined by the Board of Directors to be reasonable in the circumstances of the matter, and that the undertaking to indemnify specifies the occurrences which, in the opinion of the Board of Directors, are expected in light of the company's actual activities at the time the undertaking is granted, and that the Board of Directors determined that the amount or extent thereof is reasonable in the circumstances;

(b) as detailed in subsection a(1a) or (2).

(2) a provision that permits the company to indemnify its officer retroactively (hereinafter: "Permission to Indemnify").

Authorization to Indemnify (amended 2005)

261. If the company's Articles of Association include a provision to that end, then it may enter into a contract for the insurance of an officer's responsibility for any liability that will be imposed on him in consequence of an act which he performed by virtue of being its officer, in each of the following:

(1) violation of the duty of care towards the company or towards another person;

(2) breach of fiduciary duty against the company, on condition that the officer acted in good faith and that he had reasonable grounds to assume that the act would not cause the company any harm;

(3) a monetary obligation that will be imposed on him in favor of another person.

Liability Insurance

262. (a) In a private company in which the shares are divided into categories, a decision to include a provision on exemption or indemnification in the Company's Articles of Association requires approval by Category Meetings, in addition to approval by the General Meeting

(b) In a public company, in which the officer is a controlling member as defined in Section 268, the decision of the General Meeting to include a provision on exemption, indemnification or insurance in the company's Articles of Association requires, in addition to the majority required for a change of the company's Articles of Association, also approval by the shareholders who do not have a personal interest in the approval of the decision, as required in respect of an exceptional transaction under the provisions of Section 275 (a) (3).

Change in the Company's Articles of Association (amended 2005)

263. A provision in the company's Articles of Association, which permits the company to enter into a contract for the insurance of its officer; a provision in the company's Articles of Association or a Board of Directors decision to permit indemnification of an officer; or a provision in the company's Articles of Association which exempts an officer from responsibility toward the company for any of the following will not be valid:

(1) breach of fiduciary duty, except for the purpose of indemnification and insurance for breach of fiduciary duty as defined in section 261(2);

(2) a violation of the duty of care committed intentionally or recklessly, unless committed negligently;

(3) an act committed with the intention to make an improper personal gain;

(4) a fine or a payment in lieu of criminal proceedings imposed on him.

Invalid Provisions (amended 2005)

264. (a) Any provision in the company's Articles of Association, in a contract or in any other manner, which directly or indirectly stipulates against the provisions of this Article will have no validity.

(b) An undertaking to indemnify or to insure an officer's liability resulting from a breach of fiduciary duty toward the company, except for the breach of duty of care as defined in Section 261(2) will not be valid, and an officer will not, directly or indirectly, accept such an undertaking; acceptance of a said undertaking constitutes a breach of fiduciary duty.

No Stipulation (amended 2005)