Civil Case (Haifa) 73247-09-24 Tzachi Tarazi v. Carmel Porkosh

Partial Judgment

1. This case brings together two former partners who worked together in a business selling salads. The plaintiff claims that he is entitled to half of the rights in the limited liability company, by virtue of a secret trust agreement, despite the defendant's registration as a sole proprietor.  On the other hand, the defendants rely on the official registration with the Registrar of Companies and the company's documents to prove that the defendant's status was that of an employee only, and that the claim of trust, alternatively partnership, is baseless.
2. The partial judgment in this case is intended to provide a response to the matter of the main remedy requested in the action - a remedy for the provision of accounts. In the framework of the partial judgment in question, a response will also be provided to the indemnity remedy or compensation, for the claim of investment in the partnership with Carmel in the sum of ILS 235,000, which was not returned to the plaintiff upon the sale of the partnership to the company (paragraph 19.4 of the statement of claim).

Summary of the relevant facts:

3. The plaintiff (hereinafter: "Tzachi") ran a business of selling nuts and gifts under the name "Coke" and selling salads in the same place under the name of "Saltia". In 2019, Tzachi entered into an agreement with defendant 1 (hereinafter: "Carmel"), who provided him with advertising and marketing services in his business, and they established a partnership called "Parsley Investments", for the purpose of operating a business selling salads called "Saltia" (hereinafter: the "Partnership").  At first, the Saltia business operated in Nesher and later moved to Haifa.  Due to Tzachi's financial debts, a foreclosure was imposed on the partnership's bank account, and the parties removed Tzachi's name from the partnership's bank account.  On January 13,2020, defendant 2, "Radish Investments Ltd.", was established, which operates the "Saltia" business, with Carmel registered as the shareholder and sole director and Tzachi continuing to work in the company in a managerial capacity together with Carmel (hereinafter: the "Company" and/ or "Radish Company").  CPA Ziv Karsenty (hereinafter: "Karsenti CPA") accompanied the partnership and the company.  The company began operating in mid-2021.
4. Tzachi and Carmel worked together for the company, until 2024, when Carmel fired Tzachi from the company. Following the aforesaid, Tzachi filed a lawsuit in the Haifa Regional Labor Court (Labor Dispute Case 39789-07-24) [Nevo] for payment of salaries, severance pay, social components, and more.  On July 21,2025, a concurring judgment was issued in Tzachi's favor.  The defendants were ordered to pay Tzachi the sum of ILS 125,000 in 8 equal payments.

Summary of the prosecution's arguments:

5. Due to debts and foreclosures imposed on Tzachi, it was agreed orally and on the advice of CPA Karsanti to establish a new company ("Radish Investments Ltd.") in which Carmel was registered as a sole shareholder. According to the oral trust agreement, Carmel held half of the company's shares in trust for Tzachi, and the two of them managed the business jointly as equal partners while drawing exactly equal wages.  Tzachi deposited a total of ILS 235,000 in the partnership, compared to only ILS 150,000 deposited by Carmel, which was never returned to him.  In addition, it was agreed that the partnership would sell all of its rights to the company that was established against a tax invoice of ILS 170,000, a payment that was never transferred.
6. During the month of April 2024, a deep rift was created between the parties due to Tzachi's desire that the company acquire a courier company in order to expand its operations and save on taxes, to which Carmel vigorously opposed. As a result, Carmel acted in violation of the trust agreement, deprived the plaintiff of his rights and management of the company, and on May 28,2024, he sent him a letter of unlawful dismissal while changing locks and preventing him from entering the business.
7. The Ottoman Settlement [Old Version] 1916 The main remedy requested in the suit is the issuance of an order to provide full and detailed accounts of all the company's financial statements, from the date of its establishment until the date of filing the claim, the appointment of an accountant on behalf of the court to examine the company's financial statements, the obligation of the defendants, jointly and severally, to pay financial compensation in the sum of ILS 985,000 (for fee purposes only), as well as the payment of the lawsuit's expenses and attorney's fees and VAT. Alternatively, Tzachi petitioned for half of the company's value, which was estimated in a careful estimate of at least ILS 1.5 million (so that its share stands at ILS 750,000), and also claimed direct damages from his deprivation of the company's profits.  His claims also included reference to tort grounds, including negligence, theft, fraud and conspiracy.

12-34-56-78 Chekhov v.  State of Israel, P.D.  51 (2)

8. Tzachi emphasized in his summaries that he had easily proven that the two conditions required for obtaining an order to provide accounts were the existence of a special relationship (trust and partnership) and the right to sue for the funds for which he was seeking to receive accounts. He notes that it was proven that the salaries of the two in the company were completely identical over the years, that the funds of the partnership and the company were mixed and used by each other, and that Carmel shared with him the most sensitive business information, such as the volume of sales and profits.  This evidence, together with the testimonies of people that he presented them as equal partners always, proves the existence of a substantial partnership, as opposed to a mere employee-employer relationship.
9. The lawsuit filed in the Haifa Regional Labor Court (Labor Dispute 39789-07-24, [Nevo], in which the sum of ILS 125,000 was awarded in his favor for social rights) has no bearing on the trust agreement. The mere fact that Tzachi was employed "de facto" as an employee of the company for the purpose of receiving his social rights, does not affect or detract from his proprietary right to own half of the shares in the company by virtue of the trust agreement that was blatantly violated.

Summary of the defense's arguments:

10. In the framework of a labor dispute 39789-07-24 [Nevo], a judgment was issued that obligated the defendants to pay Tzachi the sum of ILS 125,000 for his rights as an employee. This fact creates a judicial estoppel that acts against him, since his status as an employee directly contradicts the current claim to the status of a shareholder in the company by virtue of a secret trust agreement, alternatively a partner.
11. The claim of the trust agreement was denied, in writing or orally. Tzachi did not present even the first evidence to substantiate this claim. Tzachi was never registered as a shareholder, director, CEO or authorized signatory in the company, and therefore the registration as it appears in the Registrar of Companies reflects Carmel's exclusive ownership.  In the absence of proof of the existence of a trust or partnership relationship, the legal basis for the plaintiff's demand for relief of providing accounts is also omitted.
12. Tzachi was employed only as an employee in the position of shift manager and operations, and his salary was paid in an appropriate manner by paying alimony to his ex-wife and withdrawing credit card balances, in order to help him cope with severe foreclosures. His dismissal was justified and stemmed from problematic behavior, misuse and lack of authority in the company's credit card, frequent absences, and running competing businesses behind Carmel's back. In a parallel lawsuit filed by Dana Grechin (Labor Dispute 44142-02-24) [Nevo], Tzachi explicitly admitted in the statement of defense that he served as an active manager in the store of "Arbiv Concept Express Ltd.", which directly contradicts his claim in the present proceeding that he worked "day and night" at the company and that he had no other occupation.  Tzachi's conduct constitutes an extreme lack of good faith and a cynical exploitation of his hand that was extended to Tzachi's aid.

Copied from Nevo

13. The claim of continuity between the partnership and the company was denied. The defendants presented as evidence invoice No. 550647 dated March 25,2021, which was issued in respect of the sale of the partnership's equipment to the company in the sum of ILS 170,000 plus VAT. The existence of this official and reported sale transaction proves that these are two separate legal entities, and this accounting and commercial separation completely disconnects the legal continuum claimed by the plaintiff.
14. It was claimed that CPA Karsanti testified that he never recommended a hidden trust structure in the company, and that it was proven that Tzachi's rights and obligations were recorded in the company's books only as a salaried employee. CPA Karsanti, who has served as the accountant for Tzachi's companies for years, clarified that Tzachi's involvement was on the operational and managerial level only as a senior employee, and emphasized emphatically that if he had been aware of the existence of a trust, he would have been legally obligated to report it to the tax authorities.
15. It was claimed that Tzachi's credibility collapsed, as he concealed from the court that in real time he continued to serve as a manager and controlling shareholder in other active companies such as "Arbiv Concept Express Ltd." and "Coke A.Y. Nesher Ltd.", despite his claim that the foreclosures prevented him from registering as an owner. Tzachi demonstrated ignorance and a lack of financial understanding regarding the company when he did not know data on loans or debts to the tax authorities, claiming that the company did not distribute dividends because the profits were invested in the purchase of low-cost devices and that millions of shekels were withdrawn from the business "in the black" through fictitious operations.  It was further claimed that the lawsuit in question is an inflated and invalid claim in the amount of ILS 985,000, the sole purpose of which is to exert improper pressure.

Discussion and Decision:

16. I will begin with the claim of judicial estoppel. Carmel argued against Tzachi that due to the judgment given in labor dispute 39789-07-24, [Nevo] exists a judicial estoppel. This argument is rejected.  It was held that a person can be an employee of a company and at the same time be a shareholder in it, and even be registered as a shareholder by virtue of a trust agreement, but it must be proven that the ownership or control and the work take place in two separate and real relationships.  "The rule of the verse is that there is no impediment for a company manager and a shareholder in the company to serve as an employee of the company" (Labor Appeal (National) 457/05 Gan Hawes Import Furniture and Housewares Ltd.  - Yaakov Matzliah (Nevo 27.5.2008)), and also: "[...] The rule is that there is no impediment to a shareholder in a company serving simultaneously as an employee of the company, in fact nowadays we are already dealing with "a broken vision in the Israeli economic reality".  At the same time, it was held [...] that "such parallel relations are not the rule, and their existence requires the possibility of separation in terms of the nature of the legal relationship between the two." Therefore, in this case, the question that must be examined is whether there was an employee-employer relationship between the respondent and the appellant at the same time as the respondent being a shareholder in the appellant.  It was held that the burden of proving that such parallel relations existed is on the person claiming the existence of the same relationship" (Labor Appeal (National) 242-09 Virita Ltd.    Yosef Raz (Nevo, May 31,2012)).

As stated, the claim of judicial estoppel is rejected.