The company also provided loans for the construction of packing houses for the benefit of various growers, and in cases where different growers had difficulty repaying the funds, the company waived their debt to it.
If so, government policy considerations diverted the company from operating in accordance with business and commercial considerations.
The company's policy to benefit the agricultural sector is also reflected in the amount of payments transferred to growers and the low commission rate charged by the company.
According to what I have been told, the company has often made payments to growers, at a rate higher than the sale price it charged to the buyers of the produce, so that in fact it operated in a deficit and at a clear loss. This is in contrast to the conduct of Agrexco's competing companies. This method of operation, which included the transfer of payments to the growers, is in fact a subsidy for the growers.
13.Despite the state's current disavowal of the company, as can be seen from the decisions of the honorable court and the words of the trustee for the stay of proceedings and on behalf of the bondholders, in the past, on the one hand, Agrexco conducted itself in accordance with state policy, and on the other hand, the state knew very well what Agrexco's goals were, what its conduct was, and most importantly, what the consequences of this conduct were."
- As appears in Barlev's opinion, which was written following the company's collapse at the request of the bond trustee, and when the details of the case are still "fresh", the opinion largely reflects a desire to return to the earlier period in Agrexco's activity - a period in which the company operated in the shadow of close state involvement and support, and in accordance with Section 94 of the Company's Articles of Association. At the same time, the opinion gives relatively limited weight to the defendant's conduct as an auditor, in contrast to the main emphasis placed in it on changing the pattern of the state's conduct and its implications. A reading of the opinion as a whole shows that the focus of the analysis lies in the institutional context and in the conduct of the state, while the issue of accounting registration is discussed in it with only secondary weight.
- To conclude this section, I will mention basic concepts regarding the company's articles of association: its status and purpose. The company's articles of association are considered its constitutional document. While the law confers the legal capacity, it is the statute that allows flesh and blood people to act for the artificial entity in the real world. The company's articles of association are the source that regulates its modus operandi and the powers of its organs (Zohar Goshen Assaf Eckstein Corporate Law 40 (2023) (hereinafter: "Goshen & Eckstein"). The articles of association are not just a contract, but a basic document that constitutes the "constitution" of the corporation. It determines the powers, powers, and normative structure without which the corporation remains like an empty shell. Its status as a "statutory contract" derives from the fact that it binds the company and its members by virtue of the law, and it is the only legal source that enables the rule of the majority and the dynamism required for the management of the legal entity (Civil Appeal 524/88 "Pri HaEmek" - Cooperative Agricultural Association in a Tax Appeal and 30 Others v. Sde Ya'akov - Moshav Ovdim of Hapoel HaMizrahi for Settlement, 529(4), 550-551 (1991)). The articles of association are the basic document that regulates the boundaries of the company's sector, defines the company's goals and its organic powers; In the past, an action that deviated from the purposes of the Articles of Association was considered null and void, as if the company had no legal personality for the purpose of that action. Even today, despite legislative changes that protect third parties, the articles of association remain the source that authorizes the company to operate, and any deviation from it constitutes a breach of the fundamental "contract of association" (Goshen and Eckstein, 54-55; Uriel Procaccia, New Companies Law for Israel 88 (1989)).
- In other words, while both the fundamental purpose (raison d'être) of Agrexco and the manner in which it has been operating since its establishment in 1956 indicate a consistent pattern of activity that is clearly not business-commercial, it is difficult to accept the argument that the auditing firm should be held responsible for the collapse of the company or for the deepening of its damages, based on the limited audit period in recent years of its existence. The company's activity has been shaped over the decades in the shadow of state policy and its involvement, and the creditors' reliance has been derived, to a large extent, from this institutional conduct. When the state decided to change direction and amend the company's articles of association in preparation for raising additional financing, the creditors - including the growers and even the defendant Kost Forer - realized that they had overestimated past behavior (Appendix 26 to the statement of claim; p. 27 of the investigator's report).
- This picture is also consistent with the conduct of financial entities prior to the issuance of bonds. Thus, it appears that in all four banks, mainly Discount and International Bank, Agrexco was unable to raise long-term credit, information that was not presented to the investors, who might not have entered into the investment in bonds, had they been aware of this (Appendix 15 to the defendants' affidavits, at p. 19 of Barlev's opinion). In this context, it should be noted that the case law recognizes banks as professional entities with unique expertise in the field of credit, equipped with tools for analyzing risks and examining the financial strength of their customers (Bankruptcy (Tel Aviv District) 34802-03-16 Alon Shams Debtor v. Official Receiver of Miracles, Treasurer, 32 [Nevo] (February 25, 2018); Civil Appeal 8098/09 Ora Cohen v. Union Bank of Israel in Tax Appeal - Hadera Branch, 65(2) 330, paras. 15 and 17 (2012); Civil Appeal 6547/12 Shai Amar v. Bank Leumi Le-Israel in Tax Appeal - Netivot Branch, at para. 12 [Nevo] (April 13, 2015)).
A Note on the Legal Hurdles in Representing Creditors by an Officer
- Damage to creditors, insofar as it existed, did not stem from reliance on the specific registration of the special payments as an asset in the financial statements as described above. Even if damage had been proven and reliance had existed, this would not necessarily have led to the acceptance of the claim, since the plaintiffs would have been required to cross two additional significant legal hurdles: the first relates to the authority of a liquidator/trustee to represent the creditors of a company in liquidation in the absence of an explicit assignment of rights, and the second relates to the assignment of tort claim rights of creditors to an officer in light of section 22 of the Torts Ordinance. With regard to the first question, the Supreme Court noted in detail the complexity of this issue, noting that it is "a complex question to which a clear answer has not yet been given in case law" (paragraph 63 of the appeal decision). More than necessary, I will note that it seems that the starting point in the law is that personal causes of action by creditors are not granted to an officer by virtue of his appointment, and that a liquidator or trustee is not authorized to manage them in the absence of a supplementary and clear normative infrastructure. This is what emerges from Civil Appeal 2840/21 Guy Gissin in his capacity as trustee for the filing of claims for the bondholders and private investors of Brookland Upreal Limited v. Deloitte Brightman Zohar Almagor & Co., Accountants [Nevo] (April 26, 2022) (hereinafter: the "Brookland Case"), in which the plaintiffs in paragraph 186 of their summaries quoted only the paragraph (at para. 21):
"From a substantive point of view, recognition of the mechanism for assigning rights to a claims trustee in the framework of insolvency proceedings is required in order to streamline the repayment proceedings in these situations, to obviate the need to manage individual claims or class actions, and to prevent the situation "in which the tortfeasor will be found 'laughing all the way,' while the injured party will come out with his hands on his head" (in the words of Justice Rubinstein in the Caspi case). It should be precise, as a rule, that the causes of action available to creditors in the framework of such proceedings are of the kind that should be concentrated by a single party, since they are common to all creditors, and at least to a large group of them, and in any case there is no justification, and sometimes no practical possibility, for their conduct in individual proceedings (see and compare: the Sable case, paragraph 9). Notwithstanding this, when it comes to causes of action belonging to creditors (as opposed to causes of action belonging to the company), the officer is not entitled to manage them by virtue of the powers given to him in relation to the company's assets (including the causes of action available to him). The mechanism of assignment of rights is therefore necessary in order to enable joint management of the creditors' claims, especially when there is a proximity between these claims and the company's claims, if only in the sense that their investigation requires the need for the same factual and evidentiary framework (and compare the justifications for recognizing the mechanism of a class action: Civil Appeal 8430/99 EMS Analyst). Trust Fund Management (1986) in a Tax Appeal v. Arad Investments and Industrial Development Ltd., IsrSC 56(2) 247, 256-257 (2001); Steven Goldstein and Talia Fischer, "The Reciprocal Relationship between Mass Claims and Class Actions: Aspects of Legal Procedures," Mishpatim 34(1) 23-26 (2004); Sinai Deutsch, "A Decade of Consumer Class Action: A Summary of Structures and a Look to the Future," Shaarei Mishpat 4(1) 21 (2005); Aviel Flint and Hagai Vinitsky, Class Actions 80 (2017)).
- As for the second question, section 22 of the Torts Ordinance states that "the right to a remedy due to a tort, as well as the liability thereto, cannot be assigned except by virtue of the law." Over the years, this provision has given rise to interpretive difficulties, and case law has often been required to be in scope and application (see, for example, the Brookland case, paragraphs 15 and 20; Civil Appeal Authority 6250/23 Hachshara Insurance Company in Tax Appeal v. Sharif Ayoub, 10 [Nevo] (January 10, 2024); Civil Case (Economic) 30851-01-16 Habas Investments (1960) in Tax Appeal v. Baruch Habas Initiation (2005) Ltd., para. 341 [Nevo] (July 30, 2020); Liquidations (Tel Aviv District) 9307-10-22 Backing Holdings in Tax Appeal v. Commissioner of Insolvency and Economic Rehabilitation Proceedings, paras. 18-19 and 28 [Nevo] (July 28, 2023)).
However, as stated above, a decision on these questions is not required in the framework of this lawsuit.