Inbal Or on Tuesday lost her bid to prevent the collapse of the high-profile residential real-estate empire which she built by organizing purchasing groups that bought into her projects collectively. Tel Aviv District Court Judge Eitan Orenstein ruled that her companies, including Or City Real Estate, should be dissolved, and appointed attorney Eitan Erez as a temporary liquidator.
“There is no prospect of restoring Inbal Or’s [companies] to health and it would not be right to leave them under her management,” the judge ruled. “In the situation in which the buyers find themselves, the cancellations, the halt to work at projects, there is concern over property and assets being absconded with by the controlling owner.”
Or’s real estate companies operate like a pyramid scheme, Orenstein stated. “Rights to [apartment] units were sold to buyers while the number of units that could be built based on the existing planning [requirements] was considerably lower than the number of units sold,” the judge found. He expressed a lack of confidence in the ability of Or’s companies, which currently benefit from court protection from creditors, to get back on a firm footing through such court protection.
Following the court decision, Erez, the temporary liquidator appointed to handle the assets of the Or City Group and Inbal Or’s own personal assets, told a news conference that the case represented a “watershed” when it comes to the future of purchasing groups in Israel. “From now on people won’t hastily buy an apartment from a purchasing group without ensuring that the money is in a trust account,” he said.
On Monday, police said they were opening a criminal investigation connected to allegations of fraud and theft of public funds in Or’s businesses. The investigation will also look into accusations of money laundering, fraudulent sales of apartments and other possible violations. Or was arrested about six weeks ago by the Israel Tax Authority on suspicion of evading tens of millions of shekels in taxes through fictitious billing.
Erez said his report to the court was accepted in full. The suggestion was made that there was a parallel between how Or’s company was run and the practice at airlines of overbooking flights (although the airlines might argue that there are major differences in the circumstances). Or’s firm was found to have made use of money from one project at another.
The judge reviewed Or City Real Estate’s balance sheets from 2014 and concluded that the group was not being properly run. There is concern over the fate of tens of millions of shekels of funds from people who paid the company for apartments, Orenstein found, and as a result, management of the group had to be taken out of her hands.
The liquidation of Or’s group will affect 10 active real-estate construction projects that have been in her hands and are at various stages of planning and marketing. All of them are mired in recurring legal issues: buyers who cancelled their purchases and whose refund checks have bounced, apartment units that have been sold to more than one buyer, and buyers who have backed out of purchasing apartments but for which there is no clear title to sell them to other buyers. At most of the projects, Inbal Or herself has ownership rights to one or more units.
The major problem at many of the projects involves the sale of more units than the municipal plan for the site permits. At one project, apartments were said to have been sold before Or even signed a contract to purchase the land were the projects were slated to go up. And, as noted, there have been cases where the same unit was allegedly sold to more than one purchaser.
The fate of the purchasing groups at each project will depend on recommendations that Erez makes in the future and decisions taken by the court in the case in the coming months. Some of the groups have asked to continue the function independently or to sell the land on which their project was to be built. What is clear, however, is that many of the buyers will lose money and will have to invest more to resolve their current legal and financial plights. One of Erez’s roles will be to examine the financial conditions at each project.
The mingling of funds at the various projects, Erez said, is a major issue. “The court said there was a pyramid. In other words, that means a Ponzi scheme,” he told the news conference.
With reporting by Raz Smolsky, Arik Mirovsky, Efrat Neuman and Nimrod Bousso.
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