Why did Bern refrain from reporting a request to dissolve the subsidiary?
Even if it turns out that the request for liquidation does not meet the accepted tests of the materiality threshold, the adequacy of the disclosure close to the issue is significant.
07:25
21.04.2016
By: Efrat Neumann, Yoram Gavison
At the end of March, a petition for liquidation was filed in the Central Lod District Court against Bern Afko, a contracting company that provides engineering and administrative services and solutions. The request was submitted by the anchor company Steel Industries, which claims that Bern Afco owes it NIS 660,000. The anchor served as a subcontractor to Bern Afco in the project to build the largest private power plant in Israel of Dalia Energies.
"The applicant approached the company in an attempt to collect the debt numerous times and for several months, but the company systematically evaded these requirements," the request read. The anchor claims, through Afik & Co., that its collection efforts were in vain and rejected on various grounds that Bern Afeko's liquid financial situation does not allow it to repay debts to the anchor as the company's creditor "and that the company is smuggling its assets in a way that harms creditors' safety cushion." On the other hand, Bern Afeko denies the debt, and claims that the anchor caused her damage in the amount of more than NIS 2.2 million.
Bern Afco is wholly owned by Bern Israel, which is wholly owned by the Bern Group. The Bern Group is traded on the Tel Aviv Stock Exchange, and is controlled by Alexander Nassis and Meir Dor. Bern did not report the liquidation petition filed, even though it is a company that is material to its operations. Baran Afco, which is the executive division of Baran Israel, contributed in 2015 to 71% of the profit before tax of all of Baran Israel. It is one of the two most profitable subsidiaries in the Bern Group, which lost in 2015.
According to Bern, the legal advice it received states that this is not a material matter, since the amount of the alleged debt is not material in relation to the activities of Bern Afco, and therefore there is no reporting obligation. According to them, the fact that the hearing on the liquidation request was set for the end of June also strengthens their position regarding the seriousness of the liquidation request.
However, if you look at the big picture, there is room to raise an eyebrow, both because of the problematic background of Bern's controlling shareholder in everything related to corporate governance, and also because in March the company completed an issue of shares and options to exercise NIS 60 million. NIS 10 million ended a week after Bern Afco received an immediate letter of notice, to which was attached the liquidation request that the anchor plans to file.
Dor was previously embroiled in an accusation of using inside information, when he sold shares of the subsidiary Tefen on the eve of the publication of reports that indicated a deterioration in its financial results. A company, owned equally by Bern and a private company of Nissis, has made dozens of deals with companies in which Lansis has a personal interest - without the audit committee establishing the claim that the transactions were made at market prices. It was also found that Bern charged companies that Lansis has a personal interest in Eligible, without reporting to investors.
In this situation, the group had to choose the strict side, and report a real possibility that a liquidation petition would be filed against it, even before the IPO ended, and all the more so after the petition was filed.
Even if it turns out that the application does not meet the accepted tests of the materiality threshold, the adequacy of the disclosure close to the issue is significant so that a reasonable investor will see the full picture before him and be able to examine all the considerations.
Bern Afco said that the anchor's request was submitted in order to exert pressure in an attempt to force her to pay money that she did not deserve. According to a legal opinion received by the company, the application will most likely be rejected as unfounded and there was no room for immediate reporting. They added that the liquidation request was received by the company on March 30, after the recruitment was completed. The company honors all its obligations to its employees and hundreds of suppliers and contractors.