Epstein did not lay a sufficient foundation to substantiate the claim that the fact that CPA Diab is an auditor of the company and of the Genta company, which is controlled by Chen, places him in a situation of dependence or conflict of interest, within the meaning of section 160 of the Companies Law or section 10(a) of the Accountants Law. A review of the Conflict of Interest Accountants Regulations does not indicate an inherent prohibition that Epstein claims, and there is no rule in the regulations that states that conducting an audit for the two companies puts the accountant in a conflict of interest or constitutes a violation of the principle of independence. In any event, Epstein did not point to particular circumstances rooted in the circumstances of the case that place CPA Diab in a situation of conflict of interest or independence from the fact that he provides audit services to both Mazal Tov and Genta.
A review of Appendices 5 and 6 attached by Epstein shows that CPA Diab was appointed as "authorized to report" in both companies. The appointment of CPA Diab as authorized to report on behalf of the companies does not make him an officer – which creates a conflict of interest or creates a situation of dependence, as Epstein claims. In this context, a distinction must be made between an "officer" in accordance with Section 1 of the Companies Law, and the entity appointed to report in accordance with Section 39 of the Companies Law. Section 1 of the Law states that an "officer" is "a general manager, chief business manager, deputy general manager, deputy general manager, any person who holds such a position in the company even if their title is different, as well as a director, or a manager who is directly subordinate to the general manager", while section 39(a) of the law deals with "submission of documents" to the registrar and states that "any document and any report that must be submitted to the registrar shall bear the company's identity number, and will be signed by one of the company's officers, stating his name and position, as confirmation that the details therein are correct and complete; For the purposes of this section, 'officer of the company' – including the secretary of the company or a person authorized by it for the purposes of this section." The fact that the company authorized the auditing accountant to submit documents to the Registrar of Companies does not make him one who is in a built-in conflict of interest. In any event, Epstein did not elaborate on how appointing an accountant to someone authorized to submit documents to the Registrar of Companies puts him in a situation of conflict of interest or independence. On the merits, it is difficult to accept Epstein's argument given that the reporting authority is in nature a technical authority and does not carry material content (see, for example, sections 21, 123(b), 123(a), 140, 141 of the Companies Law; and see also the Companies Regulations (Reporting, Registration Details and Forms), 5760-1999), and in particular the case of a company that is a private company.
- Epstein further argues that the mechanism set forth in section 161 should be activated, which states that "if the audit action was carried out while there was a relationship of dependency under the provision of section 160, an additional audit action will be carried out by another auditing accountant, unless, on the date on which the board of directors became aware of the matter, five years have passed from the date on which the audit was carried out as aforesaid." In view of my conclusion that there was no relationship of dependence between CPA Diab and Chen, I reject the request. Beyond the necessity, I will note that even on the merits, it appears that such a step is not required in view of the fact that, as stated, an expert was appointed by the court, who was required to give his opinion, not only on the question of the company's value, but also "with regard to the balances of the owners' withdrawals in relation to each of the shareholders and irregularities, if any", and the expert was also asked to conduct an examination of the existing balances between the company and Genta (See the decision of December 4, 2023). We emphasize that the appointment of the expert, including the mandate given to him, was with the consent of the parties. Alongside the expert, the company appointed CPA Toledano to examine the irregularities in the company.
- The conclusion, therefore, is that I reject Epstein's claim that there was a material flaw in the appointment or performance of CPA Diab. I do not believe that a factual or legal basis has been laid for the claim of dependence and conflict of interest in which CPA Diab is subjected; And the functioning of CPA Diab as an auditor for both the company and the company does not create a conflict of interest or dependence on grace. To all this, we will add Epstein's consent to the appointment of CPA Diab Chen and the concealment of these circumstances from his request.
The Motion to Represent the Company