The liquidation of a foreign company may be carried out in Israel whereas the place of residence of the Company’s principal creditors is in Israel; The judgment enables the application of Israel Insolvency laws and jurisdiction to foreign companies that have issued bonds in Israel.
The appointment of Adv. Guy Gissin as Functionary of a Canadian company that raised NIS 180 million in bonds in Israel and collapsed several months later. In the framework of the Appointment Order the Functionary was granted extensive powers of action, of information, and of investigation, in Israel and abroad, including the authority to enter into cooperation agreements with Canadian functionaries who were appointed to manage the assets of the subsidiaries in Canada. The Order of Appointment was later recognized by the Canadian Court and Functionary was recognized in Canada as a “Foreign Representation” of the Company and the Israeli insolvency proceeding as “Foreign Main Proceeding.
The ruling deals with the imposition of tort liability on the Tel Aviv Stock Exchange, on the Stock Exchange Clearing House and on a nominee company towards the shareholders from the public. The imposition of liability is due to the negligence of the aforesaid in respect of a failure in their function to ensure proper and fair trading of the stock exchange and breach of the duty of care owed to the shareholders in relation to the issuance, clearing and registration for trading of fictitious shares by the Company.
Section 350 of the Companies Law, 5759-1999 (hereinafter: “the Law”) allows the imposition of a Creditors Arrangement on a company not at its request. The Judge decision determined that the wording of Section 350 of the Law allowing creditors of the Company and its shareholders to submit an application for an arrangement shows that the correct interpretation of the section does not preclude the possibility of approving an arrangement without the Company’s consent.
In the framework of the hearing on the application for approval of a creditors arrangement submitted by Africa Israel, a dispute arose between the long-term bondholders and the short-term bondholders. The former sided with the approval of the arrangement when the latter claimed that as a creditor that had reached the date of repayment of the debts in his favor, there was a conflict of interest between the short term bonds holders and the long term bonds holders, which justifies the convening of separate creditors’ meetings. In her decision, Judge Alshech approved the convening of a single creditor meeting of the debenture holders. At the same time, the Court decided to introduce a kind of “discounting mechanism” which constitutes a basis for the establishment of new distribution principles, in the framework of which the holders of the short series will be distributed a larger part of their total cash holdings, while the longer series “settle for” other means of payment which are future and dependent on the longer lasting nature of their relationship with the Company.
The rule is that appeal by permission to decisions of courts under the Arbitration Law must be granted only in cases that raise a question of a special legal or public nature that deviates from the private interests of the parties or when the intervention of the appeal court is necessary for reasons of justice and preventing distortion of justice. The case in question falls within the scope of the exceptional cases that require the intervention of a court, since leaving the ruling of the trial court unchanged may cause a distortion of justice to the applicants.
