The Knesset Finance Committee approved the business concentration bill on Monday but left open the question of whether the legislation would apply to the two groups bidding for control of Nochi Dankner’s IDB group.
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The legislation, which now goes to the full Knesset for two more votes before becoming law, places severe limitations on companies structuring themselves as pyramids. But the finance committee rejected an amendment proposed by Zahava Gal-On (Meretz), Gila Gamliel (Likud) and Erel Margalit (Labor Party) that would have barred companies from forming new pyramids immediately. Instead, the committee opted to let the full Knesset decide whether to add the clause when it votes.
The seemingly technical decision could have a huge impact on the future of IDB. Both bidding groups -- one led by Danker and the Ukrainian businessman Alexander Gronovsky and the other by Argentinian Eduardo Elsztain and his Israeli partner Motti Ben-Moshe -- would add six new layers to IDB’s pyramidal structure even as they inject capital into the conglomerate and enable it to repay its billions of shekels in debt. A decision on which of the groups will gain control of the conglomerate is due to be made by a Tel Aviv court on December 15.
“Today, the committee made a joke of the concentration Law because at the moment it rejected our amendment it allowed the establishment of new [corporate] pyramids as soon as tomorrow morning, at a time when the legislature is trying to dismantle the existing pyramids,” said Gal-On. “If my clause is not included in the law, we are allowing IDB to establish a new [corporate] pyramid with more than seven levels.”
But committee members who opposed the clause said it would be unfair to put what in effect would be a retroactive rule into the law by barring new pyramids even before existing pyramids are banned. Yaakov Litzman (United Torah Judaism) even proposed that the law go into effect only within two to three years, presumably after a deal to restructure IDB would go through.
Despite Gal-On’s comments, the finance committee’s chairman, Nissan Slomiansky (Habayit Hayehudi), said the concentration law represents a major change for the Israeli economy.
This law constitutes a radical and fundamental change in the economic life of the State of Israel,” he said. “If, until today, most capital was exploited by wealthy families for their own good, from now on the money and the profits derived from it will go back to the broad public.”
The concentration law covers a wide range of subjects, but the critical one for IDB limits pyramids from consisting of more than two tiers of companies. If passed by the full Knesset in its current form, the law will create huge upheavals in the business sector as companies are forced to sell holdings, although not immediately as most businesses would have six years to meet the provisions of the law after it goes into effect.
In its present form, the bill creates a race against time between the IDB bidding process and the passage of the law. Because of the Hanukkah holiday starting this week, the full Knesset will not vote on the legislation before December 9 -- and even then, the law won’t take effect until it is officially enacted, which will take several more days. If the law is enacted by December 15, it will ban the formation of new pyramids; if lawmakers have not approved it by that date, the clause barring new pyramids will be presented for a vote.
With so much at stake, lobbyists were out in full force on Monday. There were those representing Gronovsky in attendance as well as others representing bondholders of IDB Holding Corporation, the company that sits at the apex the IDB pyramid. They urged lawmakers to reject the immediate ban of new pyramids, saying it would undermine efforts to rescue the heavily indebted group. Other lobbyists at the committee meeting on Monday included representatives of Housing & Construction Limited, satellite television broadcaster Yes and water company Mekorot.