The Special Director further clarifies that Section 270 Law The Friendship Defines clear cases in which there is a personal interest of an officer in the transaction (referred to by the special manager as the "statutory circle", as opposed to cases in which there is no statutory attribution of a personal interest, which the special manager calls the "outer circle"); And since the back-to-back transactions that we are dealing with fall within the scope of these cases - There was no reason to impose on the Special Director the burden of proving an "excess connection" as stated in the District Court's judgment. The receiver, for his part, supports this position.
- On the question of whether these are unusual transactions - According to the Special Manager, while Hefziba Investments' core business was the initiation of residential construction projects, the back-to-back transactions were circular credit transactions, which did not promote Hefziba Investments' business, did not meet market conditions, and as such cannot be considered the normal course of business of any company. This is reinforced with regard to the BTB Mizrahi - While this was a single transaction that was conducted in a huge sum by any standard, and its scope was about one-third of the total assets and liabilities of Hefziba Investments.
On the question of whether Heftzibah Investments has the right to cancel the back-to-back transactions by virtue of Section 281 of the Law, due to the failure to obtain approvals for the transactions as stipulated in the law - The Special Manager argues that since the back-to-back transactions were unusual transactions for Heftziba Investments, which were conducted with interested parties, according to Section 272(II) Law The Friendship They were required to be approved both by Heftziba Investments' board of directors and at its shareholders' meeting (in the absence of an audit committee in the company). However, approval of the dealBTB Mizrahi by General Meeting It was never asked, and in any case it was not possible; And the deal BTB Discount has not even received approval from The Board of Directors (According to the Special Manager's version, a certificate presented to Discount Bank did not include the necessary transaction components, and therefore does not meet the requirements of the law in this regard). Therefore, according to the position of the Special Manager, Hefziba Investments has a right in accordance with the Section 281 The law should cancel the transactions, in circumstances in which Bank Mizrahi and Discount Bank knew and should have known about the lack of the necessary approvals. With regard to the issue of Their Knowledge of the banks, it was argued by the special manager and receiver that real weight should be given to the bank's status as a "social agency", and that the bank owes fiduciary duties not only to its customers but to the public at large, and the significance of our case is that the banks should not have been allowed to lend a hand to transactions whose entire purpose is illegal and illegitimate, all while turning a blind eye to the personal matter and the lack of the necessary approvals for this reason.
- On the question of whether Heftziba Investments has the right to cancel the back-to-back transactions by virtue of Section 281 to the law, on the grounds that the transactions do not meet the conditions of the "best interest of the company" - It was argued that the "test of the company's best interest" is a normative test in which only legitimate and legal transactions are protected, whereas back-to-back transactions are not. According to the Special Manager, a transaction whose sole purpose is to distort the financial statements may perhaps help the company in the immediate term in raising funds for its coffers - However, this is an illegal action, and as such it does not meet the test of the best interests of the company in any case. It was further argued that the District Court erred in determining that since in the circumstances of the case there is no concern of harm to minority shareholders in Heftziba Investments, the burden of proving that the back-to-back transactions were not in favor of the company is high and that this burden has not been lifted. According to the Special Manager, the test of the company's best interest is intended, among other things, to prevent the transfer of wealth from the company to the private pocket of a shareholder, or of another company under his control - And all while hurting To the creditors of the company, As in the case at hand. In any event, it was argued that Mizrahi Bank and Discount Bank acted illegally because they did not conduct a sufficient inquiry regarding the purpose of the back-to-back transactions, and in fact, even today, the banks are unable to point to any legitimate reason for carrying them out. In the meantime, the Special Manager notes that Hefzibah Investments' financial statements for 2005 misrepresent the company's financial situation and the degree of its liquidity - While the ILS 75 million deposit is registered as one of Heftziba Investments' assets, there is no disclosure in the reports of the fact that this deposit is mortgaged in favor of Mizrahi Bank and that against the deposit there is a debt of the company to Hefziba Shikun; It was also argued that the same would have been done in the financial statements for 2006 had the Hefziba Group not collapsed before they were prepared.
In addition to the Special Manager's approach, the District Court also erred in ruling that the banks were entitled to rely on statements by Hefzibah Investments' attorney - Both with regard to the existence of the mechanism for approving transactions of interested parties as prescribed by law, and with regard to the fact that the transactions are "for the benefit of the company". This is especially so, in light of the public status of the banks and their status as "professional creditors", which requires them to conduct an independent examination, even if only minimally, before lending a hand to a circular transaction that raises real concerns about its legality and legitimacy. In this context, the Special Director emphasizes that Boaz Yona's agreement to the deal BTB Discount, as a party, cannot serve as a substitute for his consent to execute the transaction in his capacity as a director of Heftziba Investments.
- On the question of whether Hefziba Investments has the right to cancel by virtue of Section 256(III) Law The Friendship - According to the Special Manager, the personal interest of Mordechai Yona and Boaz Yona in Hefziba Shikun rises to the Conflict of interest "Direct" between their personal interests and the interests of Hefzibah Investments in which they serve as directors - and in these circumstances, we are dealing with a breach of the duty of fiduciary duty to which the two are liable to the company, as stated In the section 254(A)(1) to the law. According to the Special Manager, the power of attorney was not intended to promote the interests of Heftziba Investments itself, but rather the personal interest of the directors, with the aim of postponing the end and delaying as much as possible the collapse of the Heftziba Group and lifting the veil between it and the group's controlling shareholders.
On the question of the scope of restitution deriving from the right of cancellation - The receiver emphasizes that the cancellation of the back-to-back transactions does indeed require mutual restitution in accordance with the laws of contracts; However, in the circumstances of the case, restitution is subject to insolvency law, which means that in practice the banks will have to file debt claims as part of the liquidation and insolvency proceedings of Hefziba Shikun and Mordechai Yona. Thus, according to the claim, he undertakes in accordance with the overarching principle of insolvency law - is the principle of equality between creditors. For his part, the Special Administrator clarifies that the deposit funds deposited in Hefzibah Investments' accounts are not "bank money", but rather funds that were owned by Hefzibah Investments and that were taken from her account illegally and by the unilateral action of the banks; and that the mere fact that it was Mizrahi Bank and Discount Bank that provided these funds to Hefziba Shikun and Mordechai Yona does not give the banks any preference over other creditors of the two.
- From the contractual perspective - It was claimed that the entire purpose of the back-to-back transactions was to illegally "beautify" Hefziba Investments' balance sheets and to present a misleading representation regarding its financial strength; In the position of the Special Director, this goal is illegal, immoral and contrary to public policy - Therefore and according to Section 30 Law The Contracts The transactions must be declared null and void and mutual restitution must be ordered in the manner detailed above.
On the question of whether you have made a transaction BTB Mizrahi formulates a "disguised pledge" - The Special Manager refers to the fact that the letter of guarantee and the deed of offset signed by Hefziba Investments as part of the transaction BTB Mizrahi served as collateral for a loan provided by Mizrahi Bank to Heftziba Shikun, and as such, the letter of guarantee and the deed of offset are subject to the instructions of the The Pledge Law, 5727-1967, and they were obligated to register. The Special Director emphasizes that the rule is that a lien requires publicity; This is all the more valid where we are dealing with a lien intended to secure a debt of a third party (Hefziba Housing) and not of the bank's customer himself (Hefziba Investments) as in the case at hand. The receiver also shares the position of the Special Manager that the bank should have registered the lien in the Companies Register, especially in view of the lack of identity between the borrowing customer and the customer with the deposit that serves as collateral, and taking into account its enormous monetary value (ILS 75 million). In the absence of registration, the significance of the special manager and the receiver's version is that the lien is void vis-à-vis the creditors and the liquidator, as stated In the section 178 To the Ordinance The Friendship [New Version], 5743-1983. As already noted, as part of the BTB Discount Bank Registrar to Lien on the Deposit in the Companies Registry - Therefore, the claims regarding a disguised pledge were not raised in relation to this transaction.
- And now to the claims of the Special Manager and the Receiver regarding an engineering transaction.
On the question of whether the transaction was tainted by a "personal matter" and whether it was an "unusual transaction" - According to the Special Manager, an engineering transaction is a stakeholder transaction in that it is "A transaction of a company with an officer of its"As the saying goes. Section 270 Law The Friendship - Mordechai Yona served both as an officer of Heftziba Engineering and as a party to the transaction personally. The Special Director also believes that we are dealing with"An unusual transaction" As stated In the section 272 to the law; This is because the core of Heftzibah Engineering's business during the relevant period was the execution of construction work, and it is clear that an engineering transaction is not connected to this activity, does not promote it, and this is sufficient for it to be considered an exception. Furthermore, it was claimed that as part of the transaction, Heftziba Engineering was required to provide unlimited guarantees in the amount in favor of Heftziba Housing and Heftziba Investments, and as a result, Heftziba Engineering itself faced a real risk of insolvency. Moreover, it was argued that we are dealing with a transaction in which the controlling shareholder of Heftziba Engineering made a "pseudo-repayment" of his debt to the company, and such a transaction clearly deviates from the market conditions; and second, providing collateral for the liabilities of other companies without any consideration also exceeds the "market conditions". However, despite the fact that it was an unusual transaction, which was also tainted by a personal interest, it was claimed that an engineering transaction was not brought for approval by the General Assembly as required In the section 272 to the law.