According to the Special Manager, an engineering transaction is also an interested party transaction that was not approved in accordance with the mechanism set forth in the law; The transaction does not meet the test of "the best interest of the company"; And Mordechai Yona's personal interest in the transaction amounts to a breach of the fiduciary duty of which he owes the company. It was further argued that for these reasons, Heftzibah Engineering has the right to cancel the transaction according to Sections 281 and256(c) 30Companies Law; and that the structure of an engineering transaction constitutes a "disguised pledge", which was not lawfully registered in the Companies Registry and is therefore void (the aforesaid refers to the monetary deposit only, since in relation to the securities a pledge was registered). In contrast to the back-to-back transactions, with respect to an engineering transaction, it was not claimed that it was an improper contract.
- The District Court (Judge) D. Mintz) rejected all the claims of the Special Director in connection with the engineering transaction (Liquidations 16739-08-14, [Published in Nevo] Decision of December 11, 2016). It was held that it was even possible to suspend the position of the special manager regarding the approvals that were required to validate an engineering transaction - Thus, canceling the transaction in any case would not have yielded him any benefit; This is because cancellation requires the return of the funds not only from Mizrahi Bank to Hefziba Engineering, but subsequently also from Hefziba Engineering to Mordechai Yona, and from there it returned to the bank again.
The District Court further rejected the Special Manager's argument that the engineering transaction was not "For the benefit of the company" As required In the section 270 30Companies Law Given that Heftziba Engineering did not receive any consideration in the framework of this transaction. It was determined that the best interests of the company should be examined in light of the overall transaction and its unique characteristics; In other words, the fact that the companies in the Heftziba Group enjoyed strong economic backing while relying on each other's support and providing collateral through the transfer of assets between them. It was further clarified that it is not possible to distinguish between the interests of one company in the group and the benefit of the group as a whole; and that in these circumstances "Viewing the good of investment and housing companies that are also members of the group as a negative thing for the company (Hefzibah Engineering-A.B.) is completely artificial" (paragraph 28 of the decision). On this point, the District Court further reiterated its position as expressed in the judgment given in the matter BTB Mizrahi, according to which where it is alleged that a transaction was made against the best interests of the company because it is unfair to The Company power (as opposed to unfairness towards Minority shareholders), then there is no place to impose on the controlling shareholder of the company the burden of proving the fairness of the transaction. And in the circumstances of the present case - "In order to examine, therefore, whether the transaction was not in favor of the company (Hefzibah Engineering), it is necessary to examine the reasonableness of the provision of the lien provisions within the entirety of the company's past activity, and to examine what the company gained from it and to consider what it lost. To claim casually that the transaction was a 'free transaction' as the Special Manager claimed, without any basis, is not enough."