ADS holders in Israeli companies listed on NASDAQ are entitled to certain shareholder rights, including the right to convene special shareholders’ meetings

In a recent ruling, the Israeli District Court of the Central District made significant determinations regarding the rights of holders of American Depositary Shares (ADS) securities in Israeli companies listed on NASDAQ. ADS are securities issued by non-US companies to be listed on the NASDAQ.

The plaintiff is an investment firm holding ADS securities in the respondent, an Israeli public company listed on NASDAQ. The plaintiff holds approximately 7% of the respondents and has been acting to affect the respondent’s management respondents. The plaintiff asked to convene a shareholders meeting but was denied by management. The plaintiff claimed it should receive rights equal to regular shareholders, particularly the right to convene an extraordinary shareholders’ meeting. The plaintiff argued that ADS holders cannot be deprived of shareholders’ mandatory rights according to the Israeli Companies Act, which applies to the responding company. This issue has not yet been discussed and determined by an Israeli or a US court.

The Court noted that the right to call a shareholders’ meeting, propose agenda items for the meeting, and vote in such a meeting are among the most important rights a shareholder has. Considering the general framework and the specific language of the documents pertaining to the ADS in this matter, the Court ruled that as an Israeli company, the respondent cannot be exempt from the mandatory obligations imposed on it under the Israeli Companies Act. The Court established that ADS holders are entitled to certain shareholder rights, including the right to convene special shareholders meetings, set the agenda, and vote in such meetings.

This ruling is notable as it reinforces the rights of ADS holders, aligning them more closely with those of regular shareholders under the Israeli Companies Act. The ruling may encourage greater shareholder activism and engagement, especially among minority shareholders seeking to influence corporate governance.

For more information, please get in touch with Adv. Ran Sprinzak or Adv. Tomer Weissman, co-heads of our Litigation Department.