As Court Approves Fishman Deal, Who Profits From Israel's Largest Bankruptcy?

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Eliezer Fishman and his wife Tova in court.
Eliezer Fishman and his wife Tova in court.Credit: Moti Milrod

Tel Aviv District Court President Eitan Orenstein approved a mediation agreement in Israel’s largest bankruptcy case that would leave the children of failed businessman Eliezer Fishman multimillionaires.

The deal does not only benefit the Fishmans, but eventually a collection of actors in this long-running saga that ends at a loss for the loaning banks' many small scale investors.

The Fishman case

Fishman was declared bankrupt three years ago, with his initial debt totaling 4 billion shekels (over $1 billion). After the banks sold off some assets, the debt was cut to 2.9 billion shekels. Attorney Joseph Benkel was named trustee for his assets. From the beginning, Benkel said Fishman had given his wife and children hundreds of millions of shekels in assets over the years, a sophisticated move that apparently foresaw a future bankruptcy. Benkel demanded that the family return hundreds of millions of shekels to Fishman’s creditors.

Even after the agreement, Benkel says Fishman’s wife and children hold some 250 million shekels in assets.

A protester holds a picture of Eliezer Fishman and his family during a demonstration against the approval of the bankruptcy mediation arrangement, Tel Aviv, July 22, 2020.Credit: Ofer Vaknin

The Fishman bankruptcy case involves complicated relationships, corporations and deals, and it’s no surprise that the court pushed the sides more than once to take their conflict to mediation. Tuesday’s ruling doesn’t involve Fishman himself, but rather the assets that were transferred to his family.

Under the agreement formulated by mediator Asher Grunis, a former Supreme Court president, Eliezer’s wife Tova and their children Ronit, Anat and Eyal will deposit at least 20 million shekels from asset sales into the bankruptcy fund, bringing its balance to at least 214 million shekels. The assets to be sold include the family’s home in Savyon; half the proceeds from the sale will go into the bankruptcy fund. Fishman’s children will pay 4.8 million shekels in cash.

Fishman’s main creditors are banks, which agreed to the deal. However Benkel, the trustee, vehemently opposed it. It’s unprecedented to have all the parties agree to a deal except for the trustee, who is charged with ensuring the public’s interests – and certainly in the case of such a dramatic settlement. Could the banks have gotten more money? Now we won’t know. But what we can see are the conflicts of interest of the parties involved in Israel’s largest bankruptcy case.

The banks

Ostensibly, Benkel was appointed by the court in order to fight for the interests of the banks, and he knows the affair inside out, having spent thousands of hours poring over the details. Benkel has stated clearly that the agreement is a bad one, and that the children could have put in much more money. Logically speaking, the banks should be on Benkel’s side. So why did they embrace the agreement?

First, the banks want to bury their shameful conduct involving Fishman’s finances, after loaning him billions over the years. In 2017 Israel appointed a Knesset investigative committee which harshly criticized the banking oversight in everything that had to do with loans to Israel’s largest borrowers. Former Banks Commissioner Hedva Ber said in 2016 that the banks gave loans to Israel’s tycoons without any financial justification and only due to the “halo effect.”

A branch of Bank Hapoalim, 2020.Credit: MENAHEM KAHANA / AFP

Second, the banks may be considering their relationship with the Fishman family, which still has quite a lot of money as well as relationships with the banks’ executives. And third, the banks have already written off most of Fishman’s debt, so any money they get is pure profit.

Orenstein noted that the creditors “aren’t idiots.” The question is whether the banks agreed to a deal that’s good purely for the banks’ managements, or also for the shareholders whose retirement savings are invested in the banks – the public, us, the idiots.

Joseph Benkel

Benkel’s head-on conflict with the Fishman family began shortly after he was appointed trustee, and a lot of acrimony has built up since then, with 180 requests filed by the parties and endless conflicts. The mutual recriminations have been particularly extreme.

Benkel says the case is a complicated one, and requires investigations into hundreds of companies in Israel and abroad. Benkel prepared harsh reports regarding the Fishman family, demanded that illicit asset transfers be canceled, filed legal proceedings in foreign countries and hired accountants, lawyers and private investigators.

Attorney Joseph Benkel.Credit: Ofer Vaknin

Over the past three and a half years, Benkel racked up a bill of 5 million shekels, which will be coming out of the final payout. That’s an average of 120,000 shekels a month. There’s no question about Benkel’s integrity, but he has a financial incentive to keep the case going and object to the settlement.

And yet, his opposition is unusual. In approving the deal, Orenstein, noted Benkel’s “admirable work,” stating, “His unflinching commitment to the creditors isn’t a given. The creditors ultimately chose not to take his position, but this does not minimize Benkel’s significant contribution to the bankruptcy fund in general and the settlement in particular.” This sentence leaves onlookers wondering, which side is right?

Eitan Orenstein

Orenstein, the judge, made several allowances for himself in the case. The trustee he appointed objected to the settlement, and for the past six months Benkel has been complaining that he wasn’t invited to meetings that the mediator held between the Fishmans and their creditors.

Orenstein wrote that the settlement “cannot fully satisfy every side.” This was followed by his statement that he hadn’t been asked to examine the components of the agreement one by one, but he did not find any “problems at the root of the matter.” He settled for giving Grunis and the banks’ work his stamp of approval.

Judge Eitan Orenstein.Credit: Ofer Vaknin

Orenstein is retiring, presumably to a job in the private sector, within a few months. Like other former judges, he’ll likely be employed as a mediator. Is it possible he didn’t want to anger important market players such as the banks? Maybe this is the best deal possible, but in order to reach that conclusion, Orenstein would have needed to examine the inherent conflicts of interests.

The Official Receiver

The Justice Ministry’s Official Receiver has special status in bankruptcy cases, since they involve public interests that necessitate public oversight. The problem is that the receiver generally doesn’t intervene when the parties reach an agreement.

This policy is not suited to the Fishman case. This case very much lacked the involvement of an objective public figure. There wasn’t even any public criticism of the agreement, as it was confidential up until last week’s hearing, a problematic issue in and of itself.

A demonstration against the approval of the Fishman mediation agreement, Tel Aviv, July 22, 2020.Credit: Ofer Vaknin

The derivative lawsuit

The matter isn’t over. Alongside the bankruptcy proceedings is a derivative lawsuit filed against Bank Hapoalim regarding the credit it gave Fishman. The suit was filed in 2017 in the name of the bank’s shareholders, against the bank and its former executives, over the shortcomings that led to the generous loans extended to Fishman.

A mediation attempt failed, after the bank’s insurance didn’t agree to the settlement. Maybe this suit will enable the bank’s shareholders to recover a small portion of what they lost in the Fishman affair.

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