It seems that Eden himself recognizes the legal difference between Mehadrin, which operates by virtue of formal agreements, and Agrexco, which operated without a contractual anchor for its advances, but at the same time maintains that preference should be given to the "economic essence" and that the asset should be examined according to the future cash flow expected to derive from it (Eden Opinion 2012, section 10.3):
"10.3 It is true that as far as it appears from Mehadrin's financial statements, the advances to the growers were given by way of loans against future marketing considerations, and Mehadrin's ability to deduct from the marketing considerations the loans that were given is anchored in a formal legal agreement, as opposed to the advances to ensure the supply of the products given by Agrexco that were not anchored in any legal agreement. However, to the best of my understanding, and in accordance with the principle of the primacy of the economic essence over the legal form, the determining test, at the end of the day, is the amount of the winnings and the future cash flow expected to derive for each of the companies from these advances/loans."
- It seems that these examples, which were brought by the defendant's expert, Prof. Eden, are substantially different from our case, and therefore they do not establish a definition of control over the "growers trust" asset, and in practice some of them may even weaken the defendant's claim. Consequently, the growers were free to leave, which makes the resource one that is not controlled by the entity, and therefore does not meet the definition of an accounting "asset."
- As for the third condition regarding expected future economic benefits, the existence of probable future benefits as a result of the resource must be examined. As stated, Standard 30 explicitly states that an intangible asset should not be recognized unless it is expected that in the future benefits or economic benefits will flow to the company around the resource, and that the degree of certainty in the existence of these benefits must be sufficient as a condition for proper recognition of the asset. In the case before us, at the time the company granted the advances and incentives, there was insufficient certainty that any benefits would be derived from it in the future. While the company hoped that the growers would continue to work with it and thus be guaranteed sources of production and revenue from marketing commissions in the future, this hope hinged on the ground: no evidence of long-term contracts or written commitments was presented on the part of the growers, and in any case any economic benefit was contingent on the growers voluntarily choosing to continue contracting with Agrexco in the following seasons. As noted, general expectations or good intentions are not sufficient for the purpose of recognizing the asset according to the standard, and a real and quantifiable probability of the flow of economic benefits is required. The fact that in practice, as it turned out in retrospect, some of the growers who received the advances did not continue to engage with the company in the following seasons indicates that there was insufficient certainty of future benefits when the incentives were given.
- Therefore, from the evidence, and in particular the testimonies of the experts, it emerges that Standard 30 applies to payments to growers, and that the liquidators claim that the company, and its auditors, deviated from the provisions of the standard. I cannot accept the defendant's argument that Standard 30 does not apply in the specific case, since this interpretation has no anchoring in the language or purpose of the standard. On the contrary, the standard is the main framework for examining the very existence of an intangible asset, such as the "incentives" in our case, especially when there are no written contracts and the engagement is based on expectation. In this context, the standard explicitly states that "an intangible asset will be recognized, if and only if: (a) it is expected (probable) that the foreseeable future economic benefits that it will give to the entity will flow to the entity" (section 21 of Standard 30). In other words, the item should not be recognized as an intangible asset if there is no reasonable certainty that economic benefits will be derived from it in the future. Therefore, my conclusion is that in this case the conditions of recognition were not met in the absence of a separate identification of the resource, in the absence of the company's control over the resource and in the absence of sufficient certainty for future benefit. Therefore, the payment to the growers was not an "asset" according to accounting rules, and had to be treated as an ongoing expense during his time.
Applicability of IFRS 15
- More than necessary, even in a supplementary examination according to IFRS 15, it is clear that payments to growers do not justify recognition as an asset. In summary, it appears that there is indeed a conceptual error in the attempt to rely on sections 70 and 72 of IFRS 15 (as was done in the affidavit of Itai Gottlieb, the witness on behalf of the defendant, and in the statement of defense), which deal with the measurement of the transaction price and recognition of the income in order to justify the postponement of the expense. I accept the argument that the issue at hand is "costs for obtaining a contract", which is regulated in sections 91-94, and one should not draw a distinction from the rules of recognition of income to the rules of recognition of expense, or from the rules of recognition of the obligation to the rules of recognition of the asset (paragraphs 162-173 of the Ronen opinion; as well as Dr. Ronen's words regarding the ability to infer from the accounting policy regarding the "frequent flyer", in paragraph 203 of the opinion). A prerequisite for recognition of an asset is a reasonable expectation that the cost will be covered through income from the contract. As mentioned, Agrexco paid the growers grants with no certainty or high probability of generating future revenues to cover them, since the growers did not commit to providing a specified amount of produce. From an economic point of view, this is an expense for an uncertain business prospect that does not establish a recognizable asset even under IFRS 15. In addition, it appears that this is not a down payment for the purchase of inventory, since Agrexco did not acquire property rights in the produce against the payments, and the growers, for their part, did not undertake to supply goods. This is an expense that is intended only to obtain a business opportunity, and therefore it must be recorded during the period in which the expense was made. In this aspect, it is indeed possible that the material deletion of approximately €15 million that the company made retroactively constitutes a correction of the original accounting error (as also appears from clause 5.15 of the Eden 2012 opinion). Therefore, even according to these criteria, these are costs that should be recognized as an immediate expense.
- The aggregate indicates that the payments to growers do not meet the conditions for recognition as an intangible asset under Standard 30 and IAS 38, and cannot be capitalized according to IFRS 15 either. Therefore, their registration as an asset in the financial statements exceeded the binding accounting standards. Therefore, I hold that in law, the liquidators claim that the payments to the growers should have been recognized as a current expense at the time of their formation.
Recoverable amount and impairment
- Section 3 of Accounting Standard No. 15 (hereinafter: "Standard 15") states that:
"The recoverable amount of an asset shall be estimated whenever there is a mark, indicating the possibility of