Liquidations (Tel Aviv) 24777-08-24 Yerachmiel (Yerah) Baruch v. Herbert Ezra HaSofer Ltd. - part 18

Moreover, it was not clarified why the alleged violations by Segal and Herbert towards Souda affect the validity of the enslavement specifically against Baruch.  In other words, even if Segal and Herbert acted unlawfully to create the lien behind the back of Souda (who is not a party to the bond), this does not in any way affect the validity of the lien transaction against Baruch, in the relationship between him and Herbert.  Section 165 of the Companies Ordinance,  quoted above, instructs us that a company is entitled to pledge its assets subject to restrictions in its articles of association, but it is not claimed that Herbert acted to pledge its assets (as opposed to Saudada) in contravention of its own articles of association.  In any event, as we shall see now, Sauda's connection to the dispute does not detract from the conclusion that the lien is indeed valid.

1. According to the text of the Registrar of Companies of Sawda, which was attached as Appendix E to Baruch's request in the previous proceeding (see Appendix 5 to the present application), the shareholders of Sawdeh are Segal (in trust), Herbert and a company called Akash Capital Investments and Income-Producing Ltd., and its directors are Segal and another person named Aharon Shachor Kossovsky (as of July 2024).  Herbert relies on clause 6.1 of the company's articles of association (Appendix 2 to the response to the application), which states: "Any transfer of shares of the company requires the approval of the company's board of directors."  Contrary to Baruch's argument that the aforesaid provision should be interpreted narrowly in connection with the transfer of shares only, it is reasonable to assume that this provision should also be regarded as applying to a transaction for the pledge of shares, as in our case.

And to be precise.  In another case, it was clarified that the lien should be regarded in this context as a kind of conditional transfer or an undertaking to transfer, since even though the ownership of the encumbered property is not transferred at the time the lien was created, it will be transferred to a third party if a cause arises for its realization (Liquidations (Tel Aviv District) 27207-07-18 Shaul Wolfstein inTax Appeal v. S.  Heron Ltd., at paragraph 46 (Nevo, July 12, 2021)).  Thus, it was determined in the same decision that support for this conclusion can be found in section 3(b) of the Pledge Law  , which states that: "A restriction or condition that applies, according to law or agreement, to the transfer of ownership of the property will also apply to its mortgage."On the basis of this provision, it was determined that where there is a limitation of offenses on a certain right, it is plain that it is not possible to dwell on it (Civil Appeal 1560/90 Zitiat v. First International Bank of Israel Ltd., IsrSC 48(4) 498, 506 (1994); Shalom Lerner, "Restriction by Virtue of an Agreement on Violations of Rights," Mishpat 13 108, 114 (2020)).

1. In light of the aforesaid, in signing the bond and pledging the shares of Sauda that she owned, Herbert acted in contravention of clause 6.1 of the Sauda Articles of Association.  Does this nullify the bond and negate the validity of the lien created by virtue of it in favor of Baruch? In the circumstances of the case before me, the answer to this question is no.  The aforesaid in connection with Baruch's lack of knowledge regarding the approval of the shareholders' meeting at Herbert is also applicable in relation to the approval ostensibly required of the board of directors of Sawda.  At the time of entering into the bond, he had before him the undertaking of Segal and Herbert that all the approvals for the purpose of the lien transaction had been given and that there was no need for additional approvals or agreements of additional parties.  The information regarding the restrictions in Sawda's bylaws is the property of Segal and Herbert and not of Baruch, who is indisputably not connected to Sawda.  It is not appropriate to enforce on a party to an engagement with a company that pledges shares it has in another company, the requirement to receive all the basic documents of that other company in order to ensure that the pledge was lawfully done from its point of view as well.
2. Herbert claimed that Baruch knew in practice both the articles of association and the shareholders' agreement in Sawda.  In this context, Herbert referred to a correspondence dated October 31, 2022, in which Baruch's counsel contacted Segal for a request to receive the documents for the purpose of anchoring the undertaking regarding 6 units in the Beit Shemesh project.  Herbert claimed that some of these documents include the articles of association and the shareholders' agreement of Sauda, but it is not at all clear from that correspondence what exactly the requested documents were and whether the articles of association and the shareholders' agreement are included in them.  In any case, it has not been proven that they were transferred to Baruch or his counsel.
3. Even assuming (which has not been proven) that Baruch was familiar with the provision in the Articles of Association prohibiting the transfer (and pledge) of Sawada shares without the approval of the Board of Directors, this does not necessarily indicate that he knew that this approval was not received.  In other words, the mere knowledge of a certain restriction in the bylaws does not affect the knowledge or lack of knowledge that the approval intended to remove the restriction was indeed given or not.  Indeed, the articles of association are a public document that can be reviewed in the Companies Register.  However, in an engagement with Segal and Herbert, they presented Baruch with a well-founded and prima facie reliable representation according to which all the approvals required for the purpose of creating the lien had been received and therefore there was no impediment to signing the bond.  Segal and Herbert are silenced from arguing otherwise.  This is the case, even if Baruch knew of restrictions related to the articles of association of Sawda, which was not a party to the engagement, in view of the representation made by Segal (who serves as a director at both Herbert and Sawda) regarding the "full proformity" of the transaction, the burden should not be placed on Baruch to positively demand such and such approvals in connection with companies with which he has no connection.  As a result, Baruch did not know and should not have known in the circumstances of the affair before us that the approval of the board of directors of Sawdeh was in fact not received and that Herbert and Segal acted in contravention of Sawda's bylaws.  In any event, the lien transaction in any case binds  Herbert and Segal regardless of the provisions of the Articles of Association of Sauda.  Therefore, the argument that the lien transaction was made in contravention of Sauda's bylaws cannot help Herbert or Segal.

91. The aforesaid is all the more relevant to the shareholders' agreement in Saudade, which according to certain clauses ostensibly prohibits the shareholders from pledging the company's shares without the unanimous consent of all the shareholders (see the agreement attached as Appendix 3 to the response to the application). Such an agreement is not accessible to the public through the Companies Registry and in any case it binds, in ordinary cases, only the shareholders among themselves and not third parties and external to it.  In any event, it does not have the power to negate the validity of the lien transaction against a third party, and at most it has the power to establish a cause of action against the shareholder who breached the agreement.  In this context, Herbert argued that the lien transaction is liable to cause it serious damage in light of the provision of clause 15.2 of the shareholders' agreement.  However, Herbert can only complain about herself for the fact that she and Segal knowingly breached the shareholder agreement to which Herbert was a party, and in any case this does not detract from the binding validity of the lien that was duly created in connection with Herbert's holdings in the shares of Sawda.
92. Herbert also claimed that Baruch was actually aware of the shareholders' agreement. This information has no implications since, as stated, this agreement does not obligate Baruch in any case.  More than necessary, we will clarify that it has not been proven that the shareholders' agreement was indeed transferred to Baruch or his representative.  In his interrogation, Baruch clarified that he did not remember seeing the shareholders' agreement (p. 69, paras. 26-33 of the minutes).  In this context, Herbert argued that Baruch did not deny that he had seen the shareholders' agreement, but in this argument Herbert assumes that the requested agreement did indeed reach Baruch, despite the lack of positive evidence to prove it.  Herbert also referred to clause 1.2 of the bond, according to which both Herbert and Sawdeh undertake to the mortgage in favor of Baruch the shares of Herbert in Sawda, but even this provision does not obligate Baruch to demand from Sawdeh its basic documents and the approvals that it was supposed to provide.
93. There is no doubt that Segal used Herbert and Souda solely for his own personal interest, but this does not place the responsibility on Baruch's shoulders for this. Segal's breach of duties to Herbert and Souda gives them a cause of action against him, but this does not impair the validity of the lien.
94. In summary, Baruch established a lawful cause for enforcing the lien in relation to the mortgaged property.
95. The question of the identity of the receiver is still on the agenda. Given the fact that we are dealing with the enforcement of a permanent lien and not a floating lien, there is no impediment to appointing to the position the person requested by the creditor (Baruch).  It should be recalled that only when it comes to enforcing a floating lien is there a duty to appoint the receiver from the lists of trustees formulated by the Commissioner of Insolvency and Economic Rehabilitation (see  section 194(b) of the Companies Ordinance; Liquidations (Tel Aviv District) 9307-10-22 Bank Leumi Le-Israel in Tax  Appeal v. Gibi Eitan Ltd., at paragraph 26 (Nevo, October 20, 2022); Insolvency (Tel Aviv District) 17320-11-19 Bank Hapoalim in Tax  Appeal v. Commissioner of Insolvency and Economic Rehabilitation Proceedings, at paragraph 12 (Nevo, November 18, 2019)).  Our case, as stated, is one of the cases in which it is possible to appoint the representative of the lien owner as a receiver for the mortgaged property.

Conclusion

96. In view of all of the above, an order is hereby granted as requested to enforce the lien.
97. Attorney Raanan Klir is appointed to the position of receiver of the mortgaged property. A self-commitment in the sum of NIS 300,000 must be deposited.  The powers of the receiver will be as requested in sections 8-1 of the application.
98. Herbert will bear the costs of the application in the sum of NIS 75,000.
99. 512The Secretariat will send the judgment to the parties.
100. In light of Baruch and Segal's conduct as described above, a copy of the judgment will also be sent to the Tax Authority.