Liquidations (Tel Aviv) 24777-08-24 Yerachmiel (Yerah) Baruch v. Herbert Ezra HaSofer Ltd.

Judgment

Introduction

1. Before me is the application of Mr. Yerachmiel (Yerah) Baruch ("Baruch") for the enforcement of a permanent lien created and registered by the Respondent, Herbert Ezra HaSofer Company in  a Tax  Appeal ("Herbert"), in favor of Baruch, on 28 dividend shares and 88 ordinary shares of the Sawda Company in a tax  appeal ("Sawda") owned by Herbert (the "Lien" or the "Encumbered Property").
2. According to the application, the lien was created to secure the debts of Mr. Yair Segal ("Segal"), who is the shareholder in Herbert, towards Baruch.
3. The court was also asked to appoint Baruch's attorney, Adv. Raanan Klir, as a receiver for the mortgaged property.

Factual Background

1. Baruch and Segal are businessmen who entered into various deals between the years 2011-2022.
2. On May 25, 2011, a loan agreement was signed between Baruch and a certain company called Talogo Limited, in which Segal is a shareholder, in connection with a real estate property on Herbert Samuel Street in Tel Aviv (the "Real Estate Property"), an agreement that was not presented to the court (the "Herbert Samuel Agreement").  Subsequently, an appendix to the same agreement was signed between the parties, in handwriting (which was presented to the court), according to which it appears that Baruch was granted various rights to the profits that would derive from the real estate property.  As collateral for the transaction that Segal worked for, the rights of that company in a certain pub in Hungary (the "Pub").
3. At a certain point in 2016, the real estate property was sold, while it was claimed that Baruch did not receive what he was entitled to by virtue of the annex to the Herbert Samuel Agreement.
4. On December 17, 2018, an agreement was signed (in Hungarian) for the sale of the pub in Hungary to a specific buyer.
5. On January 10, 2019, Baruch and Segal entered into a handwritten investment agreement in connection with a project on Zerubavel Street in Tel Aviv (the "Zerubavel Agreement"), which Segal held through Sea Tower in  a tax  appeal ("Sea Tower").  It was agreed that Baruch's investment would be through the provision of a convertible loan into shares in an amount ranging from €1 million to €2 million.
6. According to Baruch, following the conclusion of the Zerubavel Agreement, he transferred funds to Segal or anyone on his behalf, until October 25, 2020, amounting to a nominal sum of approximately NIS 2.947 million.  It was also claimed that in the years 2021-2022, additional sums were transferred to the faculty or anyone on its behalf, totaling approximately NIS 531,000.
7. On October 30, 2022, a meeting was held between the parties for the purpose of regulating their business relations.  As a result, in December 2022, a loan agreement was signed between Baruch and Segal (Appendix 1 to the Answer), written in English, which fictitively  bears the date June 23, 2011 (the "Loan Agreement").  The loan agreement stipulated, inter alia, that the loan repayment date was December 31, 2022 (clause 2 of the loan agreement).
8. On December 20, 2022, the parties signed a first addendum to the loan agreement (the "First Addendum").  As part of it, among other things, the loan debt, which according to Baruch had accumulated to about NIS 5 million, was spread out into 9 equal monthly payments to be paid by Segal through checks.

On the same day, an agreement was signed between Baruch and Segal for the provision of strategic consulting services in connection with a real estate project in plots 4, 5, 8, 10 and 24 in Block 5171 in Beit Shemesh (the "Consulting Agreement" and the "Beit Shemesh Project", respectively).  As part of the consultancy agreement, it was determined, inter alia, that Segal would pay Baruch for the consulting services an amount of not less than NIS 2 million and not more than NIS 3 million, and that a fundamental breach of the consultancy agreement would result in the payment of agreed compensation in the sum of NIS 200,000.  It should be noted that in the course of the examination of the witnesses , it became clear that this was not an agreement for the provision of consulting services at all, but rather a fictitious agreement, intended to anchor Segal's debt to Baruch in a certain way.

1. Prior to the due date of the first check in accordance with the first addendum, the parties agreed to split the first payment and pay it by means of two checks in the sum of NIS 300,000 each, but only one of them was paid, while the second was caused by default due to lack of coverage.
2. On April 16, 2023, a second addendum to the loan agreement was signed between the parties (the "Second Addendum").  As part of it, Segal undertook to pay Baruch the sum of NIS 1,950,000 on account of the loan debt until May 31, 2023.  In addition, Segal undertook to transfer shares in Herbert to Baruch if Segal did not meet his obligations.
3. Since, according to Baruch, the debt was not repaid on time, on June 8, 2023, a third addendum to the loan agreement was signed between the parties (the "Third Addendum").  In its framework, it was agreed, inter alia, that Herbert would pledge its shares in Souda in favor of Baruch, in order to secure Segal's obligations to Baruch.
4. On June 25, 2023, a bond was signed, which is not limited in amount, to create a permanent lien on 28 dividend shares and 88 ordinary shares of Sawda held by Herbert (the "Bond").  On September 10, 2023, the Registrar of Companies approved the registration of the lien.
5. The application before me was filed by Baruch on August 11, 2024.  It was preceded by another motion filed by Baruch against Segal, Herbert and Saudade, which was dismissed out of hand for procedural reasons in the decision of the Honorable Judge A. Lushi-Abudi of July 11, 2024 (liquidations 23892-07-24) (the "Previous Proceeding").
6. On February 18, 2025 and March 25, 2025, evidentiary hearings were held in the application, in which Baruch and Segal were questioned about their affidavits.  Afterwards, an order was issued for the submission of written summaries.

The parties' arguments

1. The main arguments of the parties as presented in their summaries will be presented below.

Baruch's Arguments

1. According to Baruch, Segal admitted that he had signed the first addendum and the consulting agreement in which he undertook to pay Baruch millions of shekels.  It was claimed that the checks drawn by Segal were forfeited in the absence of sufficient coverage (except one) and that Segal admitted that he violated the first and second addendums, and that in fact he also violated the third addendum because he did not pay the sums that were supposed to be paid according to the agreement by the end of June 2023.  It was also claimed that Segal admitted that he had signed the bond by virtue of which the shares of Sawda were pledged.  The lien is intended to secure all sums due or to be received by Segal or Herbert, including the sum of NIS 5 million set out in the first addendum and consulting fees in the sum of NIS 2 million as detailed in the consultancy agreement.  According to Baruch, a debt is being resolved, and once a lien is created and registered to secure the debt and the obligation is breached, grounds arise for making the debt available for immediate repayment, enforcement of the lien and the appointment of a receiver.
2. In Baruch's view, Herbert's arguments regarding the absence of a debt and regarding the nullity of the agreements between the parties because they were allegedly obtained through threat, coercion, oppression or fraud should be rejected.  According to the claim, these arguments are contrary to all logic, since there is no reason for Segal to undertake to repay a debt that according to him does not exist only in order to be able to repel the threat of insolvency proceedings, a threat that is completely toothless and unworkable, if indeed there is no debt at all.  It was further argued that Herbert's claims were raised in a casual manner and without extensive detail as required by law, and in any event, the only threat that Segal attributes to Baruch does not constitute a "threat" at all.
3. Baruch further argues that the additions to the loan agreement were never canceled despite allegations of coercion and oppression, despite the fact that the date for canceling them by law had passed, and despite the fact that Segal did not demand the return of the amounts of checks he had given and that had been paid.  It was argued that the claims against the debt and the lien are contrary to Segal's claims in real time, to his explicit admissions of their existence and to his declarations both to Baruch and to the Registrar of Companies, and therefore Segal and Herbert are prevented and silenced from making any other claims.  In addition, it was argued that the arguments against the debt were oral arguments against a written document – the addendums to the loan agreement.  It was also claimed that Segal tried to claim that the amount of debt claimed in the application was incorrect, but he was unable to prove that there was no debt and he even explicitly admitted that he had received money from Baruch.  Therefore, the law of the application for enforcement should be granted, since a dispute over the amount of the debt does not prevent the realization of the pledge.
4. Baruch argues that the debt was not created out of thin air and originated from a long relationship.  Therefore, Segal's consent and signature to all those documents and his delivery of the checks were not done due to threats, oppression or fraud.  Baruch refers to the Herbert Samuel Agreement and the Zerubavel Agreement, for which he claims that Segal remains a high debt to him, which is proven in light of many different financial transfers by Baruch to Segal or to entities on his behalf, a debt that has never been repaid.  Baruch also claimed that Segal was the one who prepared the loan agreement.  It was claimed that Segal failed to show that Baruch was the one who transferred the loan agreement to him.  According to Baruch, he is not fluent in the English language and therefore could not prepare the loan agreement written in English.  Segal also failed to explain why Baruch would write, as stated in the loan agreement, that the funds were transferred to Segal between the years 2009-2011, which is incorrect according to Baruch, when in the first addendum it was clarified that the funds were transferred as of 2011.
5. Baruch further rejects the argument that the loan agreement is a forged or fabricated document, only because the date stated in the agreement does not correspond to the date of its actual signing, and this is because it was Segal himself who dated the agreement to 2011.  It was argued that in any event, an erroneous dating does not detract from the mere existence of the debt.  Baruch refers to a variety of additional references that in his opinion prove that even after the signing of the additions and the creation of the lien, Segal continued to breach his duty to repay the debt, without ever claiming that the debt did not exist or that the lien was invalid.  It is also claimed that Segal is an experienced businessman who chooses to represent himself or be represented by another, and it is even evident that he authors or drafts agreements on his own.
6. Baruch rejects the argument that the lien created by Herbert in his favor constitutes a transaction in which Segal, a director of Herbert, was a personal matter and therefore in order to approve it, it was necessary to convene a meeting of the shareholders under section 272(b) of the Companies Law, 5759-1999 (the "Companies Law"), which was not convened.  According to Baruch, this argument assumes that the transaction is unusual, but this is not the case, because it is a private company whose day-to-day act is the execution of transactions with its controlling shareholder.  It was argued that section 280(b) of the Companies Law  does not apply in the present case because it applies to transactions as stated in section 280(a) of the said law, which relates to the company's transaction with the officer and not to a transaction in which the officer has a personal interest.  It was further argued that not only did Baruch not know that there was any defect regarding the creation of the lien, but he knew very well that there was no such defect.  This was because Herbert's lawyer unequivocally and in writing confirmed to him that the signing of the bond was done in accordance with Herbert's bylaws and in accordance with a decision made by the board of directors in accordance with law.  It was claimed that Baruch did not know and should not have known that this was an unusual transaction that required a shareholders' meeting, and that he did not know that Herbert had other shareholders besides Segal.  In addition, it was argued that the convening of a meeting of shareholders in a private company when Segal, who signed the lien, constituted all or most of the shareholders, is a formal matter and its failure to convene does not prejudice the transaction.  Baruch further rejects the argument that the creation of the bondage was not in Herbert's favor and that there is no basis for the attempt to attribute such knowledge to him.
7. Baruch claims that Herbert and Segal presented an artificial and outrageous tractate in its definition, Segal claims in retrospect that he sinned against Herbert in a serious manner and created a bondage contrary to her good and against the law, and in an absurd way Herbert and Segal seek to enjoy these sins, and whoever is supposed to get out of it is Baruch.  It was also argued that in practice, Segal acted alone in the name of Herbert vis-à-vis Baruch for years, and therefore they are silenced and prevented from arguing against the validity of the bondage by virtue of the rules of prevention, estoppel and the duty of good faith.  In addition, it was argued that the attempt to act as a barrier against the possibility of a private company creating a lien in favor of its shareholder and even imposing on the lien holder the obligations of examining and examining the interest of the transaction for the mortgage company, is contrary to basic concepts and common practice, especially when it comes to businessmen who operate through companies.  Baruch further argues that once the lien is registered, the law requires that attempts to attack it be repelled by other creditors or an officer as well, and the rule is all the more true with respect to Herbert and Segal as well.
8. Baruch further argued that the arguments regarding the invalidity of the lien should be rejected on the basis of the Sawda Articles of Association or on the basis of the shareholders' agreement between its shareholders (the "Articles of Association" and the "Shareholders' Agreement", respectively).  It was argued that this argument is tainted by the same serious flaws as the attempt to claim that the person who created the lien now seeks to deny it.  In addition, it was claimed that Herbert and Segal do not operate independently of Sawdedeh, since Segal acted as someone capable of transferring to Baruch Sawdeh's own assets in order to repay his debt.  According to Baruch, Herbert and Segal's claims try to separate them from Souda, and therefore they have no standing to raise claims regarding the articles of association and the shareholders' agreement.  Thus, it was argued that the bylaws in any case require the approval of the board of directors for the purpose of transferring shares and not for the purpose of pledging shares.  It was further argued that this is also true with respect to the shareholders' agreement, since Baruch is a third party who is not connected to this agreement and is not familiar with it, especially since Herbert is not a signatory to it at all.  Finally, it was argued that in the third addendum there is no provision that requires the approval of the board of directors of Saudade for the creation and registration of the lien, and the same is true of the bond.

Herbert's Claims

1. Herbert claims that Baruch concealed the existence of the Zerubavel Agreement, which in her view constitutes an investment agreement, and did not claim anything about it in the framework of his application.  It was argued that in light of the loss of investment in the project, Baruch was angry with Segal and he considered him responsible not only for the return of the lost investment, but also for the sum of at least NIS 7 million, which according to him should have been the project's profits to which he was entitled.  It was claimed that Segal disagreed with Baruch's position, but was told that if he did not do as he said, Baruch would lead to bankruptcy.  In view of the difficult situation in which Segal was finding, he surrendered and signed documents under duress by virtue of which he supposedly owed large sums of money to Baruch.
2. According to Herbert, the request should be rejected due to abuse of legal proceedings because it is based on claims that are not true and on forged and fabricated documents.  According to the claim, both the date and the content of the loan agreement are false and have no connection to reality.  Herbert refers to section 414(1) of the Penal Law, 5737-1977, which defines, among other things, forgery as the making of a document that is pretended to be what is not, and which may be misleading.  According to her, not only is the loan agreement tainted by forgery and fabrication, but the entire contractual system that Baruch spun and forced Segal to enter into, including the bond and the additions to the loan agreement, which are accompanying and secondary documents to the loan agreement and are based on.  With regard to the consultancy agreement, Herbert argues that Baruch explicitly admitted that it was an ostensible document, and therefore it was null and void.  Herbert further claims that Baruch's attorney at the time, and not Segal, was the one who drafted the loan agreement (and all the other documents), because on May 2, 2022, Adv. Kobi Michael, Baruch's attorney, wrote to Segal that he was working on the loan agreement and the additional agreements.  It was argued that Baruch deliberately withheld the testimony of his counsel in the understanding that the testimony would harm him, so that Baruch's omission establishes a factual presumption of his duty in this matter.  Herbert rejects the claim that Baruch's attorney drafted the consulting agreement on the advice of Segal's accountant.  Herbert claims that Baruch lied in his affidavits and pleadings, and therefore the court should not grant relief to a litigant who abuses the legal process.
3. Herbert further argues that the lien is void in essence because it was done without authority and in contravention of  the Companies Law.  It was claimed that in addition to Segal, there is another person who holds Herbert's shares.  As a result of Baruch's pressure, Segal violated his duties of trust, good faith and fairness that apply to him as a controlling shareholder of Herbert, by acting in a conflict of interest and not in Herbert's favor.  It was further argued that the lien transaction was executed in complete contravention of the provisions of Chapter V of  the Companies Law; that it was an unusual transaction that had a material impact on Herbert's property and liabilities; that she owed nothing to Baruch; that she received nothing from either party; and that she found herself in the relationship between Baruch and Segal only as a result of the pressures exerted on Segal.  In addition, it was argued that since this was a transaction that was not in Herbert's favor and that it did not derive any benefit from it, it could not have been approved in any event.
4. It was further argued by Herbert that the lien transaction required the approval of Herbert's general meeting, which there is no dispute that was not entered, and that the transaction was hidden from the eyes of the additional shareholder.  Hence, according to Herbert's version, the transaction is invalid in light of the provisions of section 280 of the Companies Law.  It was further claimed that Baruch knew positively both about Segal's personal interest (since the lien was made in respect of his alleged debts) and that the general meeting was not convened to approve the transaction (if only because of the fact that Baruch himself is a shareholder in Herbert).  It was claimed that Baruch did not deny that he and his counsel had received many documents regarding Herbert and even admitted that at the time of signing the bond, his attorney knew about the existence of the additional shareholder.  In this context, it was claimed that Baruch's attorney was registered as a shareholder in Herbert on June 8, 2023.  It was also claimed that in his affidavit filed in the previous proceeding, Baruch clarified that on April 13, 2023, he discovered that Segal was not a sole shareholder in Herbert, long before the bond was signed.  According to Herbert, Baruch, who knew that this was a stakeholder transaction, should have required written approvals from the board of directors and the general meeting, and it does not matter that the staff has a majority in the general meeting.
5. Another argument by Herbert is that the lien is void in essence because Herbert was not entitled to create it.  According to Sawda's bylaws, the approval of the board of directors is required to pledge its shares, which was not given.  In addition, it was argued that according to the shareholders' agreement in Sauda, the company's shares could not be pledged except with the unanimous consent of all the shareholders, which was never given.  In addition, it was argued that the improper transaction could cause Herbert serious damage in light of the provisions of the bylaws.  Therefore, the restrictions in the articles of association and the shareholders' agreement have proprietary validity that acts against Baruch.  According to Herbert, the regulations are open to the public, and therefore, at the very least, Baruch should have known about the restriction set forth therein.  Herbert also referred to correspondence dated October 31, 2022, which indicates that Baruch's counsel asked Galal for certain documents, which she claimed included both the articles of association and the shareholders' agreement, and that Baruch did not deny that he had indeed seen the shareholders' agreement.  It was argued that in the third addendum it was mentioned that Sawda should also be involved in the pledge of its shares in favor of Baruch.
6. In addition, it was argued that the debt on which the application was based did not exist and was not created.  Herbert claims that Baruch invented an entirely new version of the debt after her response to the request was submitted, while relying on the Zerubavel agreement that he hid from the court.  It was further claimed that there was no correspondence between the parties in connection with the debt by virtue of that agreement, and the only correspondence presented was from 2015, prior to the signing of the agreement, and Baruch even admitted that this was an old correspondence that did not relate to the current dispute.  It was further claimed that Baruch admitted that the Zerubavel agreement was not replaced by a loan agreement, and from this his suppressed claim that this agreement became a loan transaction and by virtue of it, a debt of Segal was created towards him.
7. Herbert further argues that Baruch did not prove what funds he believed were transferred to Segal by virtue of the Zerubavel Agreement.  In this context, it was claimed that Baruch presented documents in English and Hungarian that were not prepared in Israel, and that these documents could not be used as evidence because they were not submitted in accordance with the law; Because Baruch admitted that he did not read and did not understand English and Hungarian; Because it is not clear how he attached the documents to the affidavit and related to them; and that there is an obligation to translate the documents.  It was further argued that the table that Baruch attached, which according to him details the transfers of funds to the staff, was not prepared by him, and therefore he cannot testify in this matter and no explanation was given as to why Baruch's wife (who compiled the table) was not summoned to testify.  It was also claimed that some of the funds were transferred by Baruch's wife, but it was not claimed that Segal had a debt to her.  In addition, it was claimed that the connection between Segal and the third parties to whom Baruch and his wife transferred some of the funds was not proven; that these payments are not related to the investment transaction and that the many cash payments have not been proven.  Specifically, it was argued that the said table was multiplied by sums; Because Baruch appropriated funds for himself that came to a third party (a man named Yossi Shoch) and that Baruch failed to prove certain money transfers.
8. Herbert further argues that even according to what is stated in the consultancy agreement itself, without derogating from the fact that it is an apparent and completely fictitious agreement, Baruch is not entitled to any sum for which the lien can be realized.  According to the provisions of that agreement, Baruch is entitled to the consideration specified in the agreement because Segal transferred shares in Herbert to a third party, but Segal did not receive any consideration for the allocation, and in addition, the amount due to Baruch must be determined by an appraiser, and this was not done.  It was further argued that there is no basis for the claim that the allocation of the shares constitutes a breach of the consultancy agreement, and it is not for nothing that it was not stated that it was breached in the framework of the second and third addendums to the loan agreement.  In addition, it was not proven that Segal admitted to any debt, and he did not sign the payment table on which Baruch relied.  In addition, all the documents signed by Segal are forged and are intended to serve the existence of a fictitious debt invented by Baruch.  Baruch did not deny that he had threatened Segal with economic collapse and bankruptcy, and even claimed that he was allowed to do so.  It was further argued that this was not a legitimate warning regarding legal proceedings and there was no basis for Baruch to drag Segal into insolvency proceedings, and it was not for nothing that the threat was made personally and not by Baruch's lawyers, who represented him all along.

Baruch's Arguments in the Summaries of the Responsum

1. In the summaries of the response, Baruch rejects the claim that he allegedly abused legal proceedings due to his reliance on an allegedly forged loan agreement, because Segal was the one who drafted the loan agreement and incorrectly dated it so that he could not build on it.  It was claimed that this was not a forgery as Segal was not misled or deceived; and that incorrect dating does not detract from the commitment of the parties to the agreement and cannot release the party that signed it from its undertaking.
2. Baruch further rejects the claims regarding the alleged concealment of the Zerubavel agreement from the court, since the application was based on a tapestry of agreements made between the parties shortly after it was filed, which agreed and prevailed over previous agreements, when the lien was intended to secure Segal's obligations under them.  It was argued that the application laid a full factual basis for obtaining the remedies requested therein and did not conceal anything.  It was also claimed that the Zerubavel agreement supports the fact that Segal owed money to Baruch, so it is clear that Baruch had no interest in hiding it.
3. Baruch rejects the claim that Herbert received nothing from him and that she owed him nothing.  In addition, it was argued that there was no substance to Herbert's claim that Baruch did not testify to certain witnesses, because in his opinion he did not need their testimony.  According to Baruch, there is no substance to the claim that they were included in the table of payments on which he relied "double amounts", and the attempt to separate him from his wife (because some of the funds were transferred by her and not by Baruch) is unfounded.
4. Baruch also denies the claim that he received the Sawdeh Articles of Association and the shareholders' agreement thereof.  According to him, if Herbert wanted to prove that Baruch had received this agreement, she should have presented an email attesting to the fact that the agreement had indeed been transferred to him.  Finally, Baruch rejects the argument that the evidence to prove the alleged debt was not submitted in accordance with the laws of evidence in relation to documents prepared in English and Hungarian.  In this context, it was argued that the debt was proven by means of agreements in the Hebrew language; that Segal confirmed that the money transfers were received by him even when he was presented with the documents in the foreign language; and that many other documents presented for the purpose of proving the alleged debt are written in Hebrew.

Discussion and Decision

1. After reviewing the arguments of the parties, I have come to the conclusion that the application should be granted, and as a result, the enforcement of the lien should be ordered and the appointment of a receiver as requested in relation to the encumbered property.
2. At the outset, I will note that during the examination of the witnesses, it became clear that, unfortunately, Baruch and Segal's conduct was characterized by repeated attempts to disguise the nature of the transactions that were connected between them, apparently for tax considerations.  These are experienced and shrewd businessmen, who   ostensibly entered into certain agreements, when in practice those agreements did not reflect the real transactions that were made between them, while trying to "obscure" traces by paying huge sums of money and sometimes through "parties on behalf" and various contacts.  The two did this while disguising the true nature of certain payments and by stating   a fictitious date of engagement that has nothing to do with reality on one of the agreements (the loan agreement).
3. And to be precise.  The application itself was based on two main agreements by virtue of which Baruch claims a debt that was not repaid by Segal – the loan agreement and the consulting agreement.  In the original application, it was claimed that following loans that Baruch granted to Segal beginning in 2009, the loan agreement was signed on June 23, 2011 (see paragraphs 7-8 of Baruch's affidavit that was attached to the application).  However, in Baruch's interrogation it became clear that in those years Baruch did not transfer a single penny to Segal:

"A: Between 2009 and 2011 I didn't give him a penny.