A new legislative revision of the Israeli Companies Law which entered into force on February 6 2015, deals among other things with the procedure at the meetings of the Audit Committee of a Public Company. On August 6, 2014 Amendment No. 25 to the Companies Law 5759- 1999 (the "Amendment" and the "Law", respectively) was published in the Official Gazette.
The Amendment adds new restrictions on the attendance of employees and officers at meetings of the Audit Committee, so that as of the effective date employees and officers may not attend meetings of the Audit Committee unless expressly requested by the Committee to participate.
Given the importance of the Amendment, we refer below to the provisions of the Law that have been amended as a result of the Amendment. Section 115(e)1 of the Law provided prior to its amendment that whoever is not entitled to be appointed as a member of the Audit Committee shall not attend the meetings of the Committee, unless his attendance is required and specifically requested by the Chairman of the Board for the purpose of presenting a specific issue before the Audit Committee.
This Section provides an exception to the rule under which a company's employee, who is not a holder of controlling interest in the Company or a relative of such person, may attend meetings of the Committee during the discussion phase, but not when the Committee votes on decisions. The Amendment strengthen the requirements of the exception insofar as a company's employee, who is not a holder of controlling interest in the Company or a relative of such person, may not even be present during discussion phase at the Audit Committee, unless expressly requested by the Committee.
Section 117(1) of the Law which deals with the powers of the Audit Committee was amended too. Prior to the Amendment, this section provided that the Audit Committee, in its capacity, is required to locate defects in the company's business administration and to make proposals to the Board of Directors regarding ways of correcting such defects. The Section also stated that in the event that the Committee finds out a substantial defect in the Company's business administration, the Committee shall discuss this defect in the absence of the officers of the company who are not members of the Committee, unless their presence in the debate is required for stating their position on a matter within the scope of their responsibility. This Section was also revised as part of the Amendment. From now on the mere necessity of the officer's attendance to stand his position at the meeting of the Audit Committee during which substantial defects in the company's business administration shall be discussed shall not be sufficient, his presence at the meeting must be expressly requested by the Committee.
To sum up, when the presence of officers or employees of the company is required during a discussion conducted by the Audit Committee, we must make sure that the Audit Committee shall request so expressly prior the meeting e, and that its request shall be recorded in the minutes of the meeting.
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