Civil Appeal 7594/16 Financial Case Appeal – Supreme Court Yitzhak Molcho, Special Manager v. Mizrahi Tefahot Bank Ltd.

Against

Judgment

Justice A.  Baron:

1. The appeals before us revolve around three transactions carried out by companies of the Heftziba Group (prior to the collapse of the group), which are claimed to be "interested party transactions" as aforesaid In the episode The Fifth To Part 6 2Companies Law, 5759-1999 (hereinafter: Companies Law or The Law). As part of the liquidation proceedings of these companies, the special manager, appointed by the court, petitioned to order the cancellation of the transactions of the interested parties on various grounds - and the Jerusalem District Court (the D.  Mintz) Declined requests (Judgment of 29.6.2016 inLiquidations 16739-08-14; [Published in Nevo] Judgment of 21.7.2016 onLiquidations 1549-01-14; [Published in Nevo] Decision of 11.12.2016 onLiquidations 16739-08-14) [Published in Nevo]; Hence the appeals.

Background to the proceedings

2. At the end of the 1960s, the late Mordechai Yona established the group of companies known as the Hefziba Group, which was engaged in the field of construction (above and below: Heftziba Group); Over the years, his son Boaz Yona joined him in managing the group's business. Later, the Hefziba Group became one of the largest residential construction contractors in Israel, selling thousands of apartments to many families.  In August 2007, the group collapsed, and liquidation proceedings began against it, while its financial debts stood at approximately ILS 1.5 billion (hereinafter: Liquidation Proceedings).  The collapse of the group caused severe damage to the buyers who were left without apartments, some of whom were not even given guarantees against the consideration they paid - This is contrary to the law.  Boaz Yona, who served at the time as a director and CEO of the Hefziba Group, was convicted by his confession (as part of a plea bargain) of using the money of apartment buyers for his own needs, refraining from providing them with legal collateral to secure their investments in apartments, and making false entries in the companies' books; He was sentenced to seven years in prison to be served and a suspended sentence, and he was also ordered to compensate the apartment buyers in the amount of ILS 4 million (see: Civil Appeal 11141/08 Yona v.  State of Israel [Published in Nevo] (July 17, 2011)).  A short time earlier, in May 2011, Mordechai Yona passed away.  As part of the proceedings in the matter of the Hefziba Group, a stay of proceedings order was issued against the companies, and subsequently a liquidation order was issued; The official receiver was appointed as a temporary trustee and later as a liquidator (hereinafter: The Receiver); and Adv. Yitzhak Molcho was appointed as a special manager on behalf of the receiver (above and below: The Special Manager).

A few years after the collapse of the group, the special manager filed three requests for instructions as part of the liquidation proceedings - in which the court was asked to instruct Mizrahi-Tefahot Bank inTax Appeal (Hereinafter: Mizrahi Bank) and to Discount Bank inTax Appeal (Hereinafter: Discount Bank), to return to the liquidation fund various sums of money in a total amount of over ILS 100 million.  It is the decisions in these applications that are the focus of the appeals.  In summary, the Special Director argues To nullify them of guarantees provided by members of the Heftzibah Group to each other, as well as to Boaz Yona personally.  - This is in order to ensure the guarantees' obligations to Mizrahi Bank and Discount Bank.  It should be clarified that these guarantees were realized by the banks on the eve of the collapse of the group, and the special manager (with the receiver's opinion and consent) petitioned for the return of the funds from the banks to the liquidation fund of the Heftziba Group.

3. The guarantees whose cancellation is requested were provided in the framework of three transactions, as follows:

Transaction BTB Mizrahi: It's about"Back-to-back" loan (BACK TO BACK) with a financial scope of ILS 75 million.  Mizrahi Bank provided the loan to Heftziba Housing and Development Company inTax Appeal (Hereinafter: Heftzibah Shikun), which transferred the entire loan amount to another company in the Heftziba Group - Hefziba Construction, Development and Investments inTax Appeal (Hereinafter: Heftziba Investments); Heftziba Investments, for its part, deposited the entire amount it received in a closed financial deposit, which it pledged in favor of the bank as collateral for a loan given to Hefziba Shikun, while undertaking not to make any other use of the deposit.  It should be said: Hefziba Investments' guarantee for the repayment of the loan was a condition for the provision of the loan in favor of Hefziba Housing.