Q: I'm not giving you an example that if you come again.
A: It's not the same economy. A discount on a closed transaction should be at a profit and a loss.
The Honorable Judge Altuvia: I'll say what I understood. The price is 100. The customer comes to the garage, the price is 100. The mechanic says, I want you to come again, so I tell him you'll only pay 90, and I write 10 in the books as an asset, because he'll come in the future.
Adv. Leibowitz: There is no such thing. There is no such thing.
The Honorable Judge Altuvia: I ask.
A: There is no such thing. What you asked, there is no such thing. I got a 90, I'm coming to the garage, I'm going to record an income of 90. I won't write anything else. If I only got 90 from my client, and gave him a discount, hopefully he'll come next time."
- I also cannot accept the argument "what was is what will be", which is implied, inter alia, from paragraph 11.4 of the 2012 Eden Opinion. The solidity of an asset is not a historical attribute but a function of cumulative conditions: just as a material does not solidify without reaching the freezing point, so a payment does not solidify without meeting the conditions of accounting recognition, whatever the history may be. Prof. Eden's claim that the test of control of the benefits took place due to proven experience over the years, according to which the special payments ensured the continuation of the engagement, is inconsistent with the accounting rules, since the continuity of the relationship in the past does not attest to economic control, let alone legal control, of the property as required.
- In addition, the existence of a contract, in all its forms, is not a technical matter as may appear from the defendants' claims, but rather a tool intended to substantially ensure the realization of the "hope" that "what was is what will be". Its main purpose is to define the future relationship between the parties in the present. The contract is intended to create certainty in the midst of the uncertainty involved in the future, and thus it ensures that the obligations that the parties undertook at the time of the conclusion will bind them down the road as well (Civil Appeal Authority 3961/10 National Insurance Institute v. Sahar Claims Company in Tax Appeal Migdal Insurance Company Ltd., 663(2) 563, at paragraph 7 of the judgment of the Honorable Justice v. Hendel (2012)).. By protecting the interest of expectation and the moral and legal obligation to keep promises, contract law ensures that the legal and economic reality will correspond to the original plan of the parties at the time of entering into the agreement (Gabriela Shalev and Effi Zemach Contract Law 13 ;( 2019) Additional Hearing 20/82 Edres Hamri Banin in Tax Appeal v. Harlow & Jones G.M.B.A., 42(1) 221 at paragraph 12 of the judgment of Justice Barak (1988); Civil Appeal 8506/13 Zeevi Communications Holdings in Tax Appeal v. Bank Hapoalim Ltd., at para. 45 [Nevo] (August 23, 2015)).
- And more. The absence of a binding contract and the lack of the possibility of legal enforcement of any right with respect to incentives for growers are also of weighty significance in the interpretation of accounting standards. Standard 30 (as well as International IAS 38) emphasizes that an intangible asset can be without physical form, but must be identified and based on rights or the ability to distinguish from others. In the absence of a contract, the resource allegedly created (trust or preference of growers) is not anchored in any enforceable legal right, and is more like a vague business reputation than a concrete proprietary asset. Resources with respect to which rights cannot be enforced are not under the Company's control in the accounting sense, and therefore should not be recognized as a balance sheet asset (Section 16 of 38 IAS;Civil Appeal 1839/19 Kfar Saba Assessor v. Shlomo Reisman, at para. 11 [Nevo] (June 14, 2021)). I am not convinced that our case falls within the scope of the exceptional cases in which expenses will be recognized as an asset even without a binding contract. In the absence of agreements, the relationship with growers is defined as undefined "customer relations" or "supplier relationships", a type of asset that is usually not recognized in the financial statements unless it was acquired as an addition to the business. The application of Standard 30 and the conceptual framework to this state of affairs leads to the clear conclusion that payments should not be recognized as an intangible asset, since they do not meet the required definition and criteria.
- The conclusion is strengthened in light of later facts that became clear during the company's insolvency. In Agrexco's audited financial statements for December 31, 2010, published on the eve of the company's collapse, the company announced a one-time write-off of assets in the amount of approximately €15 million, which were recorded in respect of advances and incentives for growers. In the footnote in the reports, it was explicitly stated that the deletion was required due to the uncertainty for the renewal of the distribution agreements with the suppliers of the produce and the lack of certainty as to the economic benefits that would derive to the company as a result of its engagements with the aforementioned suppliers (p. 25 of the opinion of D. Barlev, quoting from Explanation 1C of the Company's audited financial statements as of December 31, 2010). In other words, at this stage, even the company itself admitted that those "assets" that had been recognized for years would not create future benefits for it and that there is no certainty of renewing the business relationship with the growers. This admission confirms the liquidators' position: if the standardization had been implemented correctly in the first place, the incentives would have been recorded as an expense at the time they were granted, or at least a reduction or provision would have been considered due to the doubt regarding the benefit expected from them.
- The argument that "the economic essence precedes the legal form" that arises from the defendant's arguments (inter alia in paragraph 102 of the defendant's summaries) is also inconsistent with the circumstances of the present case. In practice, many growers who received incentives chose to switch to competitors, which may indicate that Agrexco had no control over future economic benefits when making the payment. The defendant wrote to the Registrar of Companies in her application to him in June 2011 (as cited in Ronen's opinion, at paragraph 59):
"In the draft financial statements for 2010, the company's management reached the conclusion that it could not expect the renewal of export agreements with the farmers and that there was uncertainty regarding the economic benefits that would accrue to the company as a result, inter alia, in light of the fact that after the balance sheet date there was a significant decrease in the number of farmers marketing agricultural produce through the company, as well as a significant decrease in the amount of agricultural produce supplied to the company."
- In addition, and as stated above, Standard 30 establishes three cumulative conditions for the recognition of an intangible asset, including the requirement for identification capability. In other words, even in a case where only one of the conditions is not met, the payment cannot be recognized as an asset. Therefore, Prof. Eden's argument that "to the extent that the company's customer relations can be separated and sold to a third party, they can be recognized as an intangible asset even in the absence of legal control" (in paragraph 9.2 of Eden's 2025 opinion) is respectfully erroneous. In general, it seems that there is no significant reference to the element of control in the opinions that were attached by the defendant's experts.
- And more. Contrary to the defendant's arguments (inter alia in paragraph 102 of their summaries), the existence of an economic value in itself does not constitute an asset in the accounting sense. Recognition of the asset, as stated, is conditional, among other things, on the existence of control over the resource and the expectation of future economic benefits. Moreover, in our case, no sufficient infrastructure was laid for the existence of a positive economic value, and the data even point to a real possibility that it is a negative value that by its nature cannot "solidify" into an accounting asset. Thus in the interrogation of CPA Gottlieb (Transcript, p. 957, paras. 1-4):
"Q: Now, the fact that an asset or something has an economic value is not enough to recognize it as an asset, but it has to meet the tests set out in the standard. Economic value is not the only test and it is enough.