I am a US executive joining our Israeli subsidiary's board. Can the company indemnify and insure me?

Yes, but only inside a framework that the Companies Law sets and that the company's own articles have to switch on. Sections 258 to 263 of the Companies Law 5759-1999 let an Israeli company exempt a director in advance from liability for breach of the duty of care, undertake to indemnify the director, and buy directors and officers (D&O) insurance. An indemnity promised in advance must be limited to events the board considers foreseeable in light of the company's actual activity, and to an amount or criteria the board considers reasonable. Section 263 then draws a hard line: no exemption, indemnity or insurance for a breach of the duty of loyalty not committed in good faith, an intentional or reckless breach of the duty of care, an act done to make an unlawful personal profit, or a fine or monetary penalty.

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Detailed Answer

The three tools work differently, and an American executive used to a single Delaware indemnification agreement should look at them one at a time. An exemption releases you from the company's own claims for negligence, but it cannot cover a breach of the duty of care connected with a distribution to shareholders, and it never covers loyalty. An indemnity is the company paying on your behalf, typically for a monetary liability to a third party under a judgment or court-approved settlement, and for reasonable litigation expenses, including in certain investigations by an authority. It can be granted after the event, or promised in advance within the foreseeable-events and reasonable-amount limits, which is why well-drafted Israeli indemnity letters attach a schedule of event categories and an overall cap. Insurance can cover a breach of the duty of care, a breach of the duty of loyalty where you acted in good faith and had reasonable grounds to assume the act would not harm the company, and monetary liability to third parties. None of it is available unless the articles of association contain the enabling provision, and subsidiaries set up from an old template often have articles that are silent or out of date. A public Israeli company needs additional corporate approvals for officers' indemnity and insurance, while a private subsidiary normally acts through its board under its articles.

Sitting on the board from New York changes the practical risk more than the legal rules. The indemnity you hold from the US parent, whether in an indemnification agreement or under Section 145 of the Delaware General Corporation Law, is an obligation of the parent; it does not bind the Israeli company, and it may not extend to an outside directorship at a subsidiary unless it says so. Check whether the group's D&O programme names the Israeli subsidiary and responds to claims brought in Israel under Israeli law, because a policy written around US securities exposure can carry territorial exclusions that bite exactly when an Israeli liquidator or creditor sues. Israeli exposure also outlives the directorship. The ordinary limitation period for a civil claim is seven years under the Prescription Law 5718-1958, so ask for run-off cover when you step down and keep your own copies of board papers. Make sure your appointment, and later your resignation, is actually reported, since the company has to notify the Registrar of Companies within 14 days under Section 223, and a directorship never removed from the register is a liability you may not know you still carry. Our article on directors' duties and liability in an Israeli company covers the duties these protections sit on.

In Practice: Sections 258 to 263 of the Companies Law 5759-1999 allow exemption, indemnity and insurance only where the articles provide for them, and Section 263 excludes bad-faith loyalty breaches, intentional or reckless negligence, unlawful personal profit and fines. D&O cover for even a small Israeli company typically starts from about NIS 10,000 a year, the Registrar of Companies must be notified of your appointment within 14 days under Section 223, and civil claims can arrive up to 7 years later under the Prescription Law 5718-1958.

When to Consult a Lawyer

• You are invited onto the board of an Israeli subsidiary that has no indemnity letter or articles predating its current structure, since the enabling provisions must be in place before a claim arises, not after.
• The Israeli company is in financial difficulty, because claims by a liquidator or creditors against directors are exactly where policy exclusions and the Section 263 limits get tested.
• You are leaving the board and want run-off insurance and confirmation that your resignation has been reported to the Registrar of Companies.

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Speak With an Israeli Attorney

An Israeli corporate lawyer can review the subsidiary's articles, draft an indemnity letter within the statutory limits and check whether the group's D&O policy actually responds in Israel.

Contact us for a confidential initial consultation.