Examiner Balance
- Knapfler adds that the performance of the properties in France was significantly lower than the published reports. A review of the examiner's balance sheet (Appendix 29 to the plaintiff's affidavit) dated June 30, 2016 shows that the operating income from the three properties amounted to €784,000 in six months, about 20% less than the income presented under the existing lease agreements. This document bears the date of June 30, 2016, and Mr. Knafler notes that it reached him in August of that year.
- However, I do not believe that this test balance, which comes into existence after the signing of the agreement between the parties, makes the engagement between them based on deception.
A study of the data in the document shows that this is a complex matter. Mr. Knepfler refers to the aforementioned figure of 784,000 euros (which appears at the top of No. 647 of his affidavit), but in doing so he isolates only one figure from the entire document. It is not impossible to take into account various expenses, including operating expenses, which are likely to reduce the rate of revenue. In any event, I accept that in order to establish misleading in this matter, it would have been appropriate to present a more comprehensive analysis relating to the totality of the data in the report, and this was not done.
Additional Representations
- I accept the directors' argument that they did not present Mr. Knafler with the representations in the forecast document. Thus, for example, Mr. Dubrovsky (defendant 3) testified that "this is a document that Mr. Knefler attached to his claim, which I cannot relate to at all, inter alia, because it was not presented to the board of directors in real time, and in any case it was not submitted by the directors and of course it was not approved by them" (paragraph 73 of his affidavit). This statement, which was also made by the other directors, was not concealed.
As far as the directors are concerned, the representations made were those included in the agreement, and in relation to these I reject Mr. Knepfler's claims of misleading on their part.
- Knepfler's claim that he was misled while the financial dispute between the property companies and their management company was hidden from him. In this regard, I will discuss when I have examined the allegations against Mr. Nehemiah, who is the one who stood with Mr. Knefler on an ongoing basis, and conducted the negotiations with him. The directors should not be expected to be present in all the details of the achievement and discussion conducted by the subject and the giver on behalf of the company. It should be remembered that directors are not like managers. As stated, with regard to the representations of which the directors were aware, there was no defect.
In their decisions regarding the agreements with Mr. Knepfler and with the Dayan Group, the directors acted in favor of the company
- A derivative of the fiduciary duty, which applies to the directors towards the company, imposes on them the duty to act for its benefit and for its benefit only. In the Deri case , the Honorable Justice Kabub quoted the basic concepts on which the Honorable Justice S.Z. Cheshin ruled, who ruled that "the company's managers serve as the company's agents and agents. To a certain extent, they are the trustees of the company, and as managers they must direct their actions for the benefit of the company, and only for its benefit. No other interest, personal or lateral, must be allowed to influence them and remove their hearts from the company and its interests" (HC 100/52 Jerusalem Industrial Company in Tax Appeal v. Agayon, IsrSC 6 887, 889 (1952) quoted in the Deri case, at para. 88)).
These are fundamental concepts in our corporate governance laws. "From the date of the director's appointment to the board of directors, he must dissociate himself from the person who appointed him, and the only consideration that must guide him is acting in good faith for the benefit of the company. The good of the company is not the interest of the controlling shareholders" (Gross Directors, at p. 51).
- In the circumstances of the present case, I accept the testimony of the directors, each of whom declared that "the only consideration that was always before my mind was the best interest of the company" (see paragraph 10 of Mr. Dubrovsky's affidavit; Paragraph 10 of Ms. Halevi-Barzilai's affidavit; and paragraph 10 of Mr. Peretz's affidavit). I found it necessary to trust her, taking into account the circumstances under which they made their decisions.
As will be immediately clear, from their point of view:
- Knepfler did not fulfill his obligation in the agreement, and asked to reopen his share. It turned out that he had liquidity difficulties, contrary to the representations he made, and that he did not pay some of the payments on time. He then asked to open the consideration component of the agreement, and to manage an account regarding the balance of the consideration in the amount of about half a million euros.
- This conduct cracked the trust between the directors and Mr. Knefler, and no one could guarantee that future payments on his part would be received on time, a very important fact in view of the company's difficult situation.
- At this stage, Mr. Knafler held 25% of the shares of the French company after purchasing the share of Guy Development. The significance of his desire to negotiate the balance of the consideration was that at the same time the question of his entitlement to the additional 8 percent of the shares of the French company, which he was to receive from ADN in accordance with the original agreement, was opened.
- The parties did not take into account the past, and Mr. Knafler's argument that this happened because Mr. Nehemia raised difficulties for him should not be accepted. Knepfler has chosen to abandon the past at this stage, and to promote an examination of an alternative transaction whereby he will acquire the remaining holdings in the assets in France.
- Against this background, the Board of Directors was informed that Mr. Nehemia also conducted negotiations with the Dayan Group for the sale of 76% of the property rights in France.
- The deal with the Dayan Group was preferable, both in view of its cash component and in view of the crisis of confidence with Mr. Knefler.
- It was the good of the company that led the board of directors, and not a desire to help Mr. Nehemia be released from the guarantee that he guaranteed some of the company's debts.
- In all their conduct, the directors exercised self-judgment, examined the alternatives, held frequent discussions, received relevant reports, and consulted legal advice on some issues.
- This totality establishes that there are no special circumstances by which Mr. Knepfler can establish personal liability of the directors, legal status to sue them, or the existence of direct legal rivalry against them. The person who has the say in all matters relating to the decisions they made is the company, with which he reached an agreement. I will turn to present the evidentiary basis that underlies the aforementioned analysis.
Mr. Knafler did not meet the payments he was obligated to make under the agreement, in a reality in which the timely flow of funds was critical to the company; This cracked the trust between the directors and him
- The parties disagree on the question of whether there is a correlation between the sums that Mr. Knafler undertook to pay in the agreement with the company, and the payment schedules in which the company undertook to repay its debts. I am not required to make a decision on this matter, since at the very least Mr. Knepfler was aware of the company's need to meet its obligations, and the relevant timetables were even made public.
Thus, ADN published an immediate report dated June 7, 2016 (Appendix 15 to the Directors' Affidavits) in which it noted that the debt to Ravad should be repaid so that €0.75 million by June 30, 2016; €1.65 million as of August 31, 2016; and €2.6 million by November 30, 2016. This report included additional details regarding the company's debts, which do not need to be reviewed here. The picture is clear, and indicates payment pressure.