Even the chairman of the company's board of directors at the time, in his remarks at the bondholders' meeting on February 3, 2011, said: "The company's articles of association give expression to the company's agenda for the day of its establishment, to provide services to the agricultural sector in a government-mixed company."
As stated, the company's articles of association were amended in this regard only recently, at the initiative of the state, as part of the state's preparations to act to privatize it, as will be clarified below. In other words, it was clear to the state that as long as its articles of association were not changed, the company was acting out of non-economic considerations and could not be privatized."
- In other words, it can also be concluded from the opinion of Bar-Lev that:
- In accordance with Section 94 of the Company's Articles of Association, which was open to the bond investors, the company's objectives were not business-commercial at all, but rather the provision of services to the agricultural sector in a government-mixed company;
- Throughout the years in question (2007-2009), the company did not meet the targets or conventions set for the issuance of bonds - meeting minimum profit and equity. All of this, as stated above, did not arouse concern among the bond trustee regarding the immediate repayment of the bonds. Moreover, the trustee admitted that he did not conduct in-depth examinations of the company's situation and did not exercise his powers under the trust deed to demand information from the accountants or to review the company's books. His professional team carried out only a superficial examination of compliance with the covenants, without delving into the significance of the detailed financial data (see the trustee's interrogation in the minutes, p. 609, s. 23 to p. 613, s. 12), which may indicate this, and I do not make any conclusions in this matter, that the failure to make the bonds repayable lies in the trustee's conduct, and not in the accounting error. At the very least, this conduct indicates that those who were entrusted with the best interests of the creditors were more concerned with the state's support for Agrexco than with one accounting item or another. The fact that the trustee attributed such significant weight to the consideration regarding the State's support for the company does not fall within the scope of the reasonable observation path of the auditing accountant. Reliance on the assumption of state support should not be regarded as an expected result or risk in the area of professional risk involved in approving the financial statements;
- Finally, it appears that when the state wanted to expand its approach to public financing in the form of privatization, it knew how to point out the hole in the "dam" - the company operates for non-economic considerations - and the state did indeed change the company's articles of association in December 2010. On the other hand, even six months later, on June 13, 2011, the Government Companies Authority approved the publication of the financial statements for 2010 (the financial report for 2010 is found in Appendix 3). Although in 2011 amendments were already made to the report that reduce the erroneous registration, it still appears that a government authority of the state did not raise a red flag regarding the accounting aspects, while it was aware of the situation, and about six months earlier, the state did choose to raise a red flag regarding another detail in the company's conduct - section 94 of the Articles of Association. These aspects are also not within the scope of the professional risk involved in approving the financial statements.
- Therefore, even at the level of the legal causal connection, there is no justification for imposing liability on the Comptroller for the alleged damage in the form of deepening losses due to the company's continued activity or the failure to make the bonds available for early repayment. The duty of care of an auditor is intended, first and foremost, to ensure an adequate presentation of the company's financial situation and to prevent misleading reliance on its reports; It is not intended to serve as a "coercion" mechanism of changing business policy, shutting down activity, or early rescue of creditors, where the company's organs and the state, as a controlling shareholder, have chosen to continue a certain course of activity. Given the company's unique characteristics, the involvement of the state, and the decisive weight given to it by the market, the alleged damage, insofar as it was caused, is more consistent with the realization of business-systemic risks and with managerial and policy choices, rather than with the typical risk that makes a deviation from accounting regulatory to wrongful in the first place. In conclusion, I will add that the Authority's approval does not legitimize a regulatory deviation, but it does strengthen the conclusion that this is not a typical legal risk that the Comptroller must bear separately from the institutional-governmental context in which the company operated.
In the Summary of the Saying - Reference to the Alleged Damage
- With regard to the alleged damage to the company, according to which the extension of the company's life and the prevention of its collapse at an earlier date caused the deepening of its losses: it is doubtful whether this can be considered compensable damage. This argument in fact reflects a doctrine of "deepening insolvency", which is not self-evident in Israeli law. As a rule, the continued activity of a corporation as a "going concern" does not constitute damage in itself, even if in retrospect it turned out that the activity ended in failure. The normative assumption in insolvency and corporate law is that there is a legitimate interest in the company's continued activity where there is a reasonable expectation of adding value, reducing damages or improving the situation of creditors and employees (Civil Appeal 2146/06 Aryeh Barak v. Baruch Abukart - Liquidator, para. 28 [Nevo] (November 18, 2010); Civil Appeal 7829/18 Better Place Israel v. Shai Agassi, paras. 8 and 60 [Nevo] (February 8, 2022) (hereinafter: " The Better Place Case")). In this context, a distinction must be made between the alleged damage to the company itself and possible damage to its creditors. Obligations taken by a company in the course of its ordinary business against receipt of consideration, such as goods, services, or loans, do not constitute damage to the company itself, but at most a business risk that has materialized (Better Place, para. 55; Civil Case (Tel Aviv-Jaffa District) 43479-01-24 A. Dori Construction in Tax Appeal v. G City Ltd., para. 153 [Nevo] (April 23, 2025); Civil Case (Central District) 47302-05-16 Better Place Israel (H.T.) 2009 in Tax Appeal (in liquidation) v. Shai Agassi, para. 136 [Nevo] (September 12, 2018)) In the absence of proof that the continuation of the activity lacked any reasonable expectation or that it involved a certain and inevitable increase in the company's losses, the element of damage does not exist as required in the tort of negligence.
- It should be said above necessity that even if I assume that the deepening of the losses can be recognized as damage on the conceptual level, it has not been proven that this damage stems from the financial statements or the defendant's omissions. From the evidentiary basis laid before me, it appears that the source of the losses lies in Agrexco's business conduct, and in particular in the policy of payments to growers, in favor of national considerations and in the nature of its activity, and not in the manner of accounting of this or that item. Therefore, even according to this alternative, there is no required causal connection between the accounting conduct attributed to the defendant and the alleged damage.
- The company Agrexco, together with the controlling shareholder, the state, conducted themselves in accordance with the company's articles of association. The following are the "operating instructions" according to the company's articles of association: 1. not to make profits; For the avoidance of doubt: 2. In the event that surpluses have been created for any reason or source - they should be distributed to the suppliers of agricultural produce. This was also the case with the company's CEO, Tiroche, when he ordered, as stated above, to classify in the financial statements under the assets section payments that were not backed by references, even before they were reflected in the final profit line, which is by definition the most common for growers.
- As the opinion of Barlev appears, the damage to Agrexco stemmed from the preference of national interests and the subsidy of the agricultural sector over business considerations, with the full involvement and knowledge of the state as a controlling shareholder (ibid., at p. 16) (my emphases, M.A.):
"According to information provided to me during the initial investigative audit, the company paid the growers grants and granted them benefits, without any obligation on their part to engage with it, grants that were eventually partially erased, as will be detailed below.