Court Rejects Trustee Claim Over Kardan Israel Dividend in Greenfeld Case
The Tel Aviv District Court ruled that a dividend paid to Kardan Israel shareholder Yosef Greenfeld after his bankruptcy arrangement does not constitute asset concealment.
The Tel Aviv District Court has ruled that a dividend distribution to shareholders of Kardan Israel, including businessman Yosef Greenfeld, shortly after the approval of his bankruptcy creditors' arrangement, does not constitute asset concealment as claimed by the trustee.
However, the court determined that surplus proceeds from the sale of Kardan Israel shares and the distribution of funds therefrom must be executed in accordance with the creditors' arrangement provisions, meaning that 80% of the funds will go to Greenfeld and 20% will be transferred to the arrangement fund.
Six years after the court approved the creditors' arrangement in Yosef Greenfeld's bankruptcy proceedings, the trustee of his estate approached the court requesting an order compelling him to pay additional sums to the trustee's fund, including 10 million shekels for the arrangement fund. One of the trustee's arguments concerned Greenfeld's alleged concealment of a rise in his income, failing to report it to the trustee in real time, and thus arguing that he must remit a monthly payment of 30,000 shekels to the arrangement fund as stipulated in the agreement.
The second argument involved a dividend approved by the Kardan board of directors days after the creditors' arrangement was approved, during a period when Greenfeld served on the board. According to the trustee, had this fact been taken into account within the framework of the arrangement, significant additional sums could have been transferred to the arrangement fund.
The Core Dispute Over Kardan Israel Shares and Dividends
The trustee's primary argument was that Greenfeld, who served as chairman of the Kardan board of directors during the formulation and approval of the creditors' arrangement, concealed from his creditors the fact that Kardan was set to distribute a total of 80 million shekels in dividends to its shareholders. At that time, upon the completion of the debt settlement, the shares were released back to Greenfeld, making him, rather than the arrangement fund, eligible to receive the dividend three days later.
Greenfeld held 18.85% of Kardan Israel shares, which yielded the dividend, amounting to a total of 16 million shekels. The trustee argued that had the creditors known from the outset that Greenfeld, the debtor, was set to receive the dividend, they would have delayed the implementation of the arrangement by three days so that the dividend would have vested in the arrangement fund.
In response, Greenfeld argued that he had no influence over the timing of Kardan's dividend distribution and that the possibility of such a distribution was known to the trustee from the very beginning of the arrangement period. He stated that the trustee failed to act in real time to seek the annulment of the arrangement based on this claim. It was further argued that the creditors had no nexus to the dividend, as Kardan's shares were pledged to secure a loan extended to Greenfeld by Mizrahi Holdings even before the arrangement was signed, enabling him to settle his debts.
Court Rejects Trustee's Claims of Asset Concealment
The court dismissed the trustee's motion regarding the share sale surpluses on several grounds. First, it was ruled that this did not constitute an asset concealed by Greenfeld from his creditors. The court noted a clear distinction between a debtor concealing an asset owned by them that was not declared to the trustee and creditors, which naturally justifies delays, versus a situation where an asset is known to all and the difficulty relates to the possibility or timing of its realization.
"Indeed, there is a difference between a debtor who conceals an asset in his possession which he did not declare... versus a situation where it is an asset known to all and the difficulty raised relates to the possibility of its realization or the timing of its realization," the court stated.
The court further noted that the asset in the form of shares held by Greenfeld was known to the trustee and creditors, and Greenfeld was permitted to redeem these shares and remove them from his estate.
Regarding the nature of the creditors, the court cited this as a justification for dismissing the asset concealment allegation. Most of the debtor's creditors were sophisticated entities that were aware in real time of the significance of the agreements they reached with the debtor and were cognizant of the possibility of a dividend distribution, or at the very least should have anticipated such a scenario.
