Civil Case (Tel Aviv) 40568-01-23 Alon Goldstein et al. v. MHR Investment Management Ltd.

1. I have before me an application for liquidation of the Limited Partnership EIT 6 Kaiserslautern Germany Real Estate Investments (hereinafter: the "Limited Partnership" or the "Partnership") pursuant to Sections 45(4) and 45(6) of the Partnerships Ordinance [New Version], 5735-1975 (hereinafter: the "Partnerships Ordinance") filed by the Applicants, 23 of the 58 Limited Partners in the Limited Partnership, against the General Partner in the Limited Partnership, MHR 1 Management and Investments in a Tax Appeal (hereinafter, Depending on the context: "MHR" or "General Partner"). It should be noted that in addition to the proceeding in the title, other proceedings were conducted in this court concerning an application for the dissolution of other limited partnerships in which the respondent serves as the general partner, under similar circumstances.

Background

2. The Limited Partnership is an Israeli partnership that holds 50 of the 100 "Tracking Share D" (hereinafter: "Tracking Share D") without voting rights in a Dutch company called FM1 Invest Germany BV (hereinafter: the "Dutch Company" or "FM1"). The shares holding the voting rights in the Dutch company are held, in equal shares, by MHR and by its German partner - Mr. Patrick Müller (hereinafter: "Müller").  The rest of the Tracking D shares, i.e.  an additional 50 shares, are also held in equal shares by Müller and MHR.
3. The Dutch company is the controlling shareholder and indirectly holds 100% of the rights of the limited partner in the German partnership M Object Kaiserslautern GmbH & Co. KG (hereinafter: the "German Partnership"), which owns the rights in a yielding property at Pirmasenser Strase 65 in Kaiserslautern, Germany, which includes three office and industrial buildings.
4. On May 3, 2016, a loan agreement was signed between the Limited Partnership, which was in the early stages at the time and was represented by the Respondent, and the German Partnership, according to which the Limited Partnership would provide the German Partnership with a loan in the amount of up to €3,900,000, which would be used to finance the cost of the purchase of the property only and would bear an interest rate of 12.5% in the first year, 10.42% in the second year and 8.34% thereafter.
5. The limited partners in the limited partnership, and the applicants among them, signed various documents to attach their joining as limited partners in the partnership, including a "joining form" and a "limited partnership agreement". The Limited Partnership Agreement states that MHR is the general partner of the partnership.  The joining form stated, inter alia, that "the investor is interested in joining the partnership, as a limited partner..." and in the partnership agreement it was stated, inter alia, that "the full and exclusive control over the management and business of the partnership and the powers to act on its behalf and the powers to act on its behalf will be in the hands of the general partner" (clause 3.2 of the partnership agreement) and that "the limited partners will not participate in the management of the partnership or its business and will not take any legal action on behalf of the limited partnership" (clause 3.4 of the partnership agreement).
6. On December 19, 2022, the Applicants received an email from the Respondent, in which the Respondent announced that the property in Kaiserslautern had been sold on December 9, 2022, for a total of €10.8 million.
7. On January 17, 2023, the applicants, who are among the limited partners in the limited partnership, filed a motion to dissolve the limited partnership, in which the court was asked to make use of its authority under section 45(4) and/or under section 45(6) of the Partnerships Ordinance and to order the dissolution of the limited partnership, in light of serious acts that were committed, according to the applicants, by the general partner in the limited partnership and to them, according to the claim, were disclosed only shortly before the application was submitted.
8. In the framework of the application, it was claimed, in summary, that in the years 2016-2018, the general partner acted, inter alia, through Internet publications, to recruit investors from Israel to invest in a real estate property in Germany, and that in this framework, and in order to convince the potential investors, the general partner presented them with a presentation that included various representations. In retrospect, it was claimed, it became clear to the applicants that the general partner's offer to purchase securities in the limited partnership was made in violation of the provisions of section 15(a) of the Securities Law, 5725-1965, which prohibits the offering of securities to the public without publishing a prospectus.
9. According to the application, the representations made to the potential investors included, inter alia, a representation that the cost of the property is €7,767,000, of which €5,000,000 will be financed and the balance, in the amount of €2,767,000, is required equity "in exchange for taking ownership of 50% of the property; A representation that the remaining 50% of the rights in the property remain "in the hands of a local partner responsible for the ongoing maintenance of the miracle; And a representation by property is held by a German partnership.
10. In the framework of the application, the applicants claimed that shortly before it was filed, following an application by their counsel to the German partner, Mr. Müller, they discovered that contrary to the partnership agreement, according to which the general partner is entitled to receive a management fee of 10% of the rent to be paid to the partnership in respect of its assets and 10% in the event of realization, the general partner received a brokerage commission in the sum of €457,905, from the first day of the investment. This was not in accordance with the partnership agreement and behind the investors' backs, while in response to the Applicants' counsel's question about the existence of an agreement between the German partner and the Respondent regarding the amount of the brokerage fee, the German partner's counsel replied that there was no such agreement and that the amount of the brokerage fee was determined by the Respondent.
11. In addition, it was claimed in the application that from the information provided by the German partner it became clear that only 25% of the glass in the property was held by the German partner and that the respondent received the remaining 25% of the rights, it was claimed, without investing in the German partnership and at the expense of the limited partners, and that there are unexplained differences between the amount of the investment in the partnership and the investment in the German partnership, which is presented in the partnership's financial statements as a "direct investment cost" in the sum of ILS 3,811,082. This was when an inquiry with the German partner revealed that the limited partnership did not bear the costs of the transaction paid to the German partnership beyond the direct investment, and that all the costs of the transaction were paid by the German partnership.
12. According to the applicants, in light of these claims, a cause of action arose for the dissolution of the partnership by the court, both for reasons of justice and honesty and for the reason that the limited partners had no reasonable possibility of continuing to manage the partnership business with a general partner, who, according to them, deceived them and beyond, with the partnership funds, which he raised from them through fraud and misrepresentations.
13. On February 6, 2023, the respondents submitted their response to the application, in which they argued, inter alia, that the application is dismissal in limine, in light of the provision of clause 9.2 of the partnership agreement, which states that the limited partnership will be dissolved only in one of the cases stated in that section, i.e.: (1) due to the general partner's decision to dissolve the partnership, (2) in a situation where an order regarding the dissolution of the general partner will be issued, (3) if a receiver is appointed over the general partner, and (4) if the general partner is declared insolvent.
14. The threshold argument raised by the Respondent was discussed in the framework of other liquidation motions filed against the Respondent in the matter of other limited partnerships in which it serves as a limited partner and in which the Applicants were represented by the Applicants' counsel herein, inter alia in Case 2133-10-22. The threshold argument was rejected in a decision of March 21, 2023, and on April 5, 2023, the parties announced their agreement that this decision would also apply to the case in the heading, and to the extent that the Respondent files applications for leave to appeal this decision, then the decision made in the applications for leave to appeal will also apply to the case in the heading.
15. An application for leave to appeal the aforementioned decision was rejected by the Supreme Court (the Honorable Justice D. Mintz) in a decision of June 25, 2023 (Civil Appeal Authority 3848/23).
16. On the merits of the Applicants' arguments, the Respondent and the Limited Partnership replied, in summary, that the Applicants, who constitute 23 of the 58 limited partners in the Limited Partnership, are acting with foreign motives in order to try to harm the General Partner and the other Limited Partners while cooperating with the German partner against whom the Partnership is conducting proceedings in Germany; that the applicants will not benefit from the dissolution of the partnership; that there was no room to refer to the issue of the success fee as "theft of investment funds" and that the use of this rhetorical tactic was intended only to create the impression that a drastic remedy was needed for the dissolution of the partnership, when it was, at most, a financial dispute; that contrary to what is claimed, the partnership agreement stipulates that the partnership will bear all expenses related to its activities, including the general partner's success fees; that the dilution of the rights of the German partner, so that he remained with only 25% of the rights in the property, did not infringe on the rights of the applicants; that the discrepancy resulting from the ancillary costs of the transaction includes the success fees of the Respondent and the German partner, as well as additional expenses detailed in the Reply, and that the Applicants can demand that accounts be provided in relation to these expenses.
17. In addition, the Respondent argued that the dissolution of the partnership is a drastic and unnecessary remedy that violates the rights of third parties, that insisting on it constitutes an unfortunate use of the (denied) right in bad faith, and that in our case, the dissolution of the partnership will only cause damage as a result of the removal of the Respondent's managers from the management of the partnership, which will lead to unnecessary chaos and chaos, when no benefit has been proven in the dissolution of the partnership. Subsequently, it was argued that "loss of trust" is not a magic word, and that even if the trust was indeed lost, then the consequences of the loss of trust should be examined and that in our case, the respondent is conducting the proceedings against Mueller, and for this purpose there is no need for a special degree of trust, since both the respondent and the applicants have an identical interest in receiving funds from the sale of the property as soon as possible.
18. On July 24, 2023, a decision was made in the application of "Nino Shaked Holdings Ltd" (hereinafter: "Nino"), which is one of the Applicants, to grant a temporary injunction of the type of sage instructing the Respondent or anyone on its behalf, including, and in particular, Mr. Shoval Manovich, Mr. Yagil Manovich and Mr. Zach Hermon to refrain from performing any action in the bank account of the German Partnership, including not transferring and/or pledging and/or assigning cash or deposits or other rights. In the sum of €7.6 million, deposited in the bank account of the German partnership, to any party without the approval of the court.  The application was filed ex parte and in the framework of which temporary remedies were also requested, to which I acceded.
19. In the framework of the decision of July 24, 2023, the request was granted in part in the sense that the temporary injunction instructing the Respondent or anyone on its behalf, including H.H. Manovich and Hermon, to refrain from carrying out any action in the German Partnership's bank account remained in place, but was limited to an amount of only €4.6 million out of the funds deposited in the German Partnership's bank account and which originated from the proceeds of the sale of the German Partnership's assets.  This is because there was no dispute between the parties that this sum is supposed to be transferred to the limited partnership account.  In addition, it was clarified in the framework of the decision that the order does not restrict the transfer of the said amount to the account of the limited partnership in Israel.
20. On November 13, 2023, I granted Nino's request for a temporary injunction instructing the Respondent or anyone on its behalf to refrain from performing any action in the bank account of Respondent No. 2 at Mizrahi Tefahot Bank Ltd., up to the sum of €541,152, and instructing the Bank to refrain from carrying out any transactions in this account, in order to ensure that the funds in the Respondent's coffers will not be used other than for the purposes of the Limited Partnership, and that if a liquidation order is issued against the Limited Partnership, Those seeking liquidation will not face a broken trough.
21. On January 16, 2024, an evidentiary hearing was held, in which the declarant on behalf of the Applicants, Mr. Alon Goldstein, and the declarants on behalf of the Respondent and the Partnership - Mr. Yagil Manovich (hereinafter: "Yagil"), Mr. Shovetz Manovich (hereinafter: "Shoval") and Mr. Zach Hermon (hereinafter: "Hermon"), the general managers of the Partner and its shareholders in the Chain were questioned.

Summary of the parties' arguments