On May 11, 2022, a draft bill to amend the Companies Law passed a preliminary reading in the Israeli parliament. The draft bill seeks to obligate companies falling under the definition of “monopolist” pursuant to the Economic Competition Law to publish their financial statements.

The draft bill must still pass three readings, including deliberation by the relevant parliamentary committee, in order to be enacted as a legislative amendment.

The striking innovation in this draft bill is that, upon its enactment, monopolists, even if not declared as such, must publish their financial statements, even if they are not reporting companies.

The explanatory notes to the draft bill clarify that the circumstances that prompted the drafting of the bill include the recent price hikes in the market and the multiplicity of monopolists and sectoral concentration that characterize the Israeli economy. According to the bill’s drafters, obligating all monopolists to publish financial statements will enable the public and the media to scrutinize their financial activities and business conduct. It should also make monopolists think twice about acting against the interests of consumers and the general public.

The Gist of the Draft Bill

Section 26 of the Economic Competition Law defines a “monopolist” as anyone holding one or more of the following:

  1. More than 50% of the supply or purchase of products or services in any market (including in a regional geographic market).
  2. “Significant market power” in any market. The Competition Director General interprets this term as “the ability to set supply terms that are significantly worse than those that would have been set in a competitive market.”

The Competition Director General has the authority to declare a person a monopolist, but the definition of a person as a “monopolist” does not depend upon such declaration. In other words, the obligations applying to a monopoly also apply to a business not declared as such by the Director General as long as it actually has a monopoly.

The significance of this draft bill (if passed in its current format) is the imposition of the obligation to publish financial statements on a non-reporting party falling under the definition of “monopolist,” regardless of whether or not it has been so declared. The draft bill will obligate companies to ascertain independently if they are monopolists in order to determine if they must publish their financial statement

On the one hand, it is not at all clear it will be possible to oversee a monopoly’s activities through its financial statements and therefore it is not clear how the publication of the reports that harm the companies’ rights will really serve the public interest. On the other hand, the proposed bill will impose a heavy burden on many corporations operating in the Israeli economy, which, from now on, will have to invest considerable resources performing an internal analysis of whether they fall under the definition of monopoly. A corporation that fails to comply with the publication obligation (or other obligations imposed on monopolies), and perhaps officers therein, may be exposed to administrative or criminal sanctions. A violation of the obligation could also result in civil liability, including class action proceedings.

The draft bill also poses other difficulties. These include exposure of companies’ internal commercial data to all of their competitors and the fact that some companies may fall under the definition of “monopolist” only in one of their operating segments and publishing their financial statements will lead to the disclosure of internal information about other operating segments in which they do not have a monopoly.