Adv. Pereg testified that he received details about ADN from his colleague, Adv. Lederman. "I learned that A. Enough. Anne Global Equity in a tax appeal [...] contacted the Ness firm to examine the options available to it due to a real concern that it was approaching an insolvency proceeding (Ness firm's area of expertise), when one of the options available to it was the rapid sale of assets in order to meet the repayment of its obligations" (paragraph 9 of his affidavit [emphasis added]). In his cross-examination, he replied (at p. 210, Q.4):
- Is the message you conveyed to Kempler that you have located a company that is on the verge of insolvency?
- Yes.
- And it was actually clear to you, I suppose, that because of the vulnerable situation of the A.D.N . and the exposure of insolvency, this could be an opportunity for the investor to sell expensive assets cheaply.
- That's right.
- And this is the opportunity that you offered Mr. Knepfler to purchase by paying the brokerage fees. I'll bring you a company that's progressing toward insolvency. It's possible to buy expensive properties at a discounted price, right?
- That's right.
He further testified (at p. 211, Q.26 onwards): "I reflected that this is a distress company, it's a distress firm [Ness Law Firm], people come to it on the one hand who want to save their business before it reaches insolvency, on the other hand people who are looking for companies in distress in order to buy properties with a high yield, as you said."
- Pereg characterized the transaction in question as a fire sale (p. 221, Q.8). In such a transaction, assets are sold at a price significantly lower than their value. The origin of the phrase is the sale of assets that were damaged in a real fire or due to a business "state of emergency", "Any sale at greatly reduces prices, esp. due to an emergency" (BLACK'S LAW DICTIONARY 1338 (7th Ed., 1999)), where the state of emergency stemmed from the economic distress in which ADN was found.
- Against this background, it is necessary to understand the circumstances in which Mr. Nehemia and the directors operated. They did not have the time. The company was in a serious situation, and the creditors were knocking on the doors. All of them operated under the constraints of the timetables for repaying the various loans. The schedules were fast, and required difficult and quick decisions to be made by those at the helm of the company. It is therefore not possible to examine their conduct in the same way as the conduct of officers whose time is in their hands, and who are not subject to the same system of pressures. They cannot be compared to those who operate within the framework of a society that does not face an existential danger. This basic characteristic will reflect on the evaluation of the functioning of the officers and on the question of justification for imposing personal responsibility on them.
Mr. Knepfler's claim that the transaction included a 20% guaranteed return commitment was not proven
- Knepfler therefore knew that ADN was under considerable financial pressure. He knew that he would be able to acquire rights in the assets while achieving a handsome and surplus return, in view of the company's constraints that would lead to its willingness to reduce the consideration for them. Still, I cannot accept his argument as if it were clear to both parties that as part of the engagement he would be guaranteed a return of 20% on the investment, and that it was a matter of binding consent.
- Knafler testified that the transaction reflected a commitment to a minimum return of 20% per year. In his words: "From the beginning of the negotiations, I presented a commercial condition according to which I am willing to make the investment on condition that the return will be at least 20% per year on the amount invested (when initially the intention was that the transaction would be executed through Tamir-Fishman). The entire agreement was structured in a way that would ensure, to the extent possible, the achievement of this purpose" (paragraph 24 of his affidavit).
This argument has not been able to be substantiated by Mr. Knepfler and I reject it. There is no mention of it in the agreement entered into between the parties, and there is no economic or commercial logic for ADN or anyone on its behalf to agree to such a commercial undertaking.
- I accept that Mr. Knefler saw the deal as very attractive, and that he expected a very significant return. He crowned the deal with crowns for a long time when it was discussed by the board of directors of the Tamir Fishman Foundation. At the meeting on May 17, 2016 (N/1), he stated that "I told my father Nehemia that she was dealing with an NOI of less than 20% and therefore a larger part of the available cash flow would be transferred to us" (ibid., at p. 5). Knepfler also presented the basic structure of the transaction and why it is worthwhile. He explained that in exchange for an investment of €4 million, assets worth €30 million would be purchased, with a value of €16 million after loans, hence the equity would increase by more than €1 million (ibid., pp. 6-7).
But this statement does not substantiate what is claimed. There is a difference between net operating income and return, and in any case no basis was provided for the fact that the other party to the transaction committed to such a return with a binding legal obligation. Mr. Knafler's statements do not, as such, bind the other party to the engagement. And there is no commercial logic for the defendants to undertake such an undertaking on behalf of the company, when its financial situation was bad.
- It should be added that Adv. Pereg, who, as may be recalled, also conspired and mediated between the parties, did not support Mr. Knefler's testimony. He testified that "I don't know how to write a 20% return in the agreement, maybe it is possible to make a mechanism, but that was not part of this deal" (p. 212, s.5).
I will also accept in this regard the testimony of Mr. Nehemiah, according to which there was talk in the dialogue between them about a handsome return without a binding promise (p. 277, s. 16 ff.). This position arises, as stated, in line with the evidentiary totality.
- I therefore determine that there is no basis for the existence of a 20% yield obligation. What is written in the agreement between Mr. Knepler and ADN speaks for him and it is the decisive one.
For the sake of analysis, I will assume that as far as Mr. Nehemia is concerned, the transaction with Mr. Knepfler and with the Dayan Group constitutes a transaction of an interested party, in which he has a personal interest; In any case, the personal interest was known to the directors and was published in the public reports
- 00The transaction with Knefler touched Mr. Nehemiah in several ways. First, there was talk of a transaction that included the sale of shares of Guy Development, which ADN controlled. As may be recalled, Mr. Nehemia controlled ADN through Ari Global Capital (see above in paragraph 6). Hence, he controlled the chain of its shares.
In addition, there is no dispute that Mr. Nehemia was a personal guarantor of the company's debts to Ravad (Appendix 7 to Knefler's affidavit), and to Mordechai Schechter (ibid., Appendix 12).