On the question of whether the transaction was "for the benefit of the company" - According to the position of the Special Manager, no concrete evidence was presented of the external consideration that Hefziba Engineering received in respect of the transaction; and the court's determination, according to which the company benefited by virtue of its membership in the Hefziba Group, empties the test of the company's best interest of its content. It was further argued that it was clear that the engineering transaction was intended to serve only the interest of the controlling shareholder of Heftziba Engineering (Mordechai Yona) - while he was granted an exemption from repaying his debt to Heftziba Engineering, and guarantees were provided to other companies under his control; and that in these circumstances, at the very least, it was necessary to transfer to Mizrahi Bank the burden of showing that the transaction served the best interests of Heftziba Engineering. In any event, there can be no doubt that this was an unusual transaction, and in these circumstances, Bank Mizrahi should have delved into its components and made sure that it was not lending a hand to a transaction that was not in the best interest of the company - An action that failed to be performed.
- On the Question of the Scope of Restitution Arising from the Cancellation - The position of the Special Manager had no basis for determining that in the event of the cancellation of an engineering transaction, Hefziba Engineering would be required to transfer any amount it received from Mizrahi Bank to Mordechai Yona's account and from there back to the bank, because Mordechai Yona had no right to withhold these funds. According to the claim, Mordechai Yona has at most an obligatory (and not proprietary) right of restitution, by virtue of which he is a regular creditor of the company that is subject to liquidation proceedings, and in addition, his right is subject to the offset of his debt to the company (in the sum of more than ILS 5.4 million). It was further argued that in view of the discretion given to the court regarding the restitution remedy, there was at least room to order a partial refund of the funds to Heftziba Engineering.
Claims of Mizrahi Bank and Discount Bank
- On the question of whether it is possible to cancel the back-to-back transactions and an engineering transaction by virtue of Section 281 to the law, due to the failure to receive approvals for transactions as prescribed by law - Mizrahi Bank emphasizes that they are a transaction BTB Mizrahi is an engineering transaction that was launched only after the bank received appropriate approvals from the guarantor companies' lawyers, according to which the transactions were approved lawfully and in accordance with the approval mechanism for interested party transactions. Mizrahi Bank was entitled to rely on such approvals in its position, and in doing so, it acted in an acceptable manner, and in these circumstances it is not possible to cancel the realization of the guarantees retroactively. The Bank further argues that there is no reason to burden the banks with the burden of finding out on their own, instead of the customers, what are the approval procedures required in relation to each transaction in each corporation, and subsequently to verify that these have indeed been complied with; According to the claim, this type of supervision and examination entails significant costs of time and money, and this is liable to lead to the paralysis of the banks' activity in the field of credit and subsequently to the paralysis of the economy as a whole. Moreover. By Section 281 Law The Friendship One of the conditions for canceling a transaction BTB Mizrahi or an engineering transaction, is that Bank Mizrahi knew or should have known that the necessary approvals for the execution of these transactions had not been received; And according to Bank Mizrahi, when it was presented with certificates regarding the validity of the transaction by the guarantor companies' representatives, this condition cannot be fulfilled in any case.
Discount Bank adds to Mizrahi Bank's claims that they are reinforced with regard to the BTB Discount transaction - According to the terms of this transaction, the bank's proprietary right to the deposit funds was preserved, and the transaction was approved not only by the board of directors of Hefziba Investments, but also by the company's general meeting. It was further argued that it applies in the circumstances of the case of the permanent presumption In the section 282 Law The Friendship, the teacher that "Presumption of a person who should not have known about the lack of approval for the transaction as required by this chapter, If he has received the approval of the Board of Directors that all the necessary approvals for the transaction have been received"; In our case: Discount Bank was entitled to rely on the approval of the Board of Directors in its approach, as expressed in Mordechai Yona's signature on the framework letter and the bond.
- On the question of the existence of a personal interest in the back-to-back transactions and the engineering transaction and the breach of fiduciary duty on the part of the officers - According to Bank Mizrahi's approach, the position of the special manager according to which the fact that Mordechai Yona was a controlling shareholder in Heftziba Investments and Heftziba Engineering at the relevant time should be rejected to determine that he or his son had a "personal interest" in the transaction BTB Mizrahi and in an engineering deal. It was argued that when an officer of the company has a personal interest in the transaction, there is a concern that he will be tempted to breach the fiduciary duty to which he owes the company, and will prefer his own or his relative's interest while harming the company and its shareholders; However, in the circumstances of the present case, there can be no concern of such a representative problem, since Mordechai Yona and Boaz Yona were not only officers of Heftziba Investments and Heftziba Engineering, but also the owners of these companies. It was further claimed that there was even a concern that the interests of Heftziba Investments or Heftziba Engineering would be harmed - In any case, there was no use in the mechanism that determined Companies Law, which is based on bringing the transactions to the additional approval of the shareholders' meeting, since in the companies in which we are dealing the shareholders and officers are the same; This, too, teaches that there is no place to apply the Section 270(1) The transactions are in question. Moreover. According to Bank Mizrahi's position, it is clear that in the absence of a "personal interest" there is no "conflict of interest" on the part of the company's officers, and there is no room for the application of the provisions Section 255(II) Law The Friendship.
Discount Bank adds that the BTB Discount transaction is also not a stakeholder transaction. In his view, this is not at all a transaction in which the officer of the company stands on both sides of the barricade of the engagement, but rather a deal between the bank on the one hand, and Boaz Yona and Hefziba Investments on the other. According to the claim, this is sufficient to refute the claim of the Special Director that the applicability of the Section 270(1) The law on the transaction is "immediate" (the claim of the "statutory circle" in the words of the special manager).
- On the question of whether the transactions were approved by the companies in accordance with the mechanism set forth in the law The Friendship In relation to interested party transactions - Mizrahi Bank believes that the answer to this is in the affirmative, both in relation to the BTB Mizrahi are in relation to an engineering deal. First, the approvals of the Board of Directors were expressly expressed in the decision of the Board of Directors of Heftziba Investments and in the decisions of the Board of Directors of Hefziba Engineering (as defined above); And according to the bank, the BTB Mizrahi and the engineering deal were also approved by the general assembly of each of the guarantees, and unfortunately the approval should be seen as if it had been given. Thus, since Mordechai Yona and his wife Hefziba were the sole shareholders in Hefziba Investments and Hefziba Engineering at the relevant time, and since they are married and live together, the two are considered as one person for the purpose of holding the shares, including voting at the general meeting (definition of "holding" inCompanies Law, which refers to the definition in the law Securities, 5728-1968, states, inter alia, that "An individual and his family members who live with him will be seen, Or you made a living for one over the other, As one person"). Therefore, according to Bank Mizrahi, Mordechai Yona's consent to the execution of the transactions is tantamount to the consent of the All the shareholders entitled to vote at the general meeting; Alternatively, Mordechai Yona's wife should be seen as having authorized him to act on her behalf in all matters relating to the business of the companies she also owned. In addition, it was argued that in our case, the case law applies, according to which where all the shareholders of the company agree to a transaction tainted by a "personal interest", it should be regarded as a transaction that was lawfully approved even if formal approvals were not received as required.
Discount Bank insists that no transactionBTB Discount has been duly approved by the authorized entities at Heftziba Investments. The letter of framework and the bond were signed by both Mordechai Yona (on behalf of Heftziba Investments) and Boaz Yona (as a borrower), who are the sole directors of Heftziba Investments, and according to the claim, these documents are sufficient to testify that the approval of the Board of Directors was received as required; Moreover, Adv. Azoulay on behalf of Hefziba Investments confirmed in her signature on these documents that Mordechai Yona's signature binds the company by virtue of decisions made in accordance with the law. Moreover. According to Discount Bank's approach, even if there was any flaw in the decision of the board of directors, there is no dispute that the transaction BTB Discount approved at the company's shareholders' meeting - This decision confirms the decision of the Board of Directors and gives it legal effect.