Israel Credit Lines' Nine-year Bankruptcy Case Could Finally Be Nearing Its End

Draft agreement provides for a NIS 60 million settlement between the receivers and the company’s investors, who include the Livnat family and Haim Tsuff.

Sivan Aizescu
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Sivan Aizescu

Major Israeli oil and natural gas exploration investors neared a NIS 60 million settlement this week that, if signed, should end their legal exposure in the liquidation proceedings for Israel Credit Lines, a company that went bankrupt in 1997 following a series of bad loans and business deals. The expected settlement, which would include the Livnat family and Haim Tsuff, would come nine years after company receivers first filed a lawsuit against the investors.

The Livnat family co-owns haulage and logistics company Taavura Holdings and has a 24% stake in the Equital holding group, which focuses on oil, natural gas and real estate investments. Tsuff, a major Israeli natural gas and oil investor, serves as CEO of Isramco and is also a shareholder in the Equital holding group.

According to a draft of the agreement, which is expected to be signed in the coming days, the Livnat family and Tsuff will be expected to pay NIS 57 million. The manner in which the NIS 57 million liability will be split is unknown, but was expected to reflect the family's 24% stake in Equital, with Tsuff likely paying the remaining 76%. The stakes of both the Livnat family and Tsuff in Equital were acquired from Israel Credit Lines ibetween 1995 and 1997, immediately preceding the company's collapse. That controversial deal lies at the heart of the lawsuit.

The publicly-traded companies that belong to Equital were expected to pay out NIS 1 million and a lawyer involved in the case, Noam Sharon, was expected to pay NIS 2 million, which will be covered by his malpractice insurance policy.

In the beginning of July, the Livnat family also agreed to pay IDB Holding Corporation NIS 90 million in both cash and shares to settle any legal claims against dividends the family was alleged to have improperly received in the past. If Bank Discount, another defendant in the Israel Credit Lines case, decides to join the settlement agreement, the total settlement payout would be expected to increase to NIS 65 million.

The settlement agreement would bring to a close one of the most complex liquidations of a publicly-traded company in Israel. A major impediment in the case was the destruction of Israel Credit Lines' company archives in a fire in 1999, making it very difficult for company receivers to find documents related to the company's collapse.

After a long investigation, company receivers filed a lawsuit against 42 defendants for NIS 500 million. The lawsuit got bogged down in preliminary arguments and barely made progress through the courts. The breakthrough came 2010, when Yuval Ran, one of the key defendants in the lawsuit and a director and controlling shareholder of Israel Credit Lines at the time of its collapse, agreed to cooperate.

Ran, who has been living in Houston, Texas for 16 years, reportedly agreed to help after feeling abandoned by his partners in the face of the claims made by the company's receivers. He voluntarily provided documents and tape recordings of transactions made by the company on the eve of its collapse. In January 2011, company receiver and attorney Itzchak Miron asked the court to amend the lawsuit to reflect the new information, which, he claimed, showed that the sale of Equital, which owns a controlling stake in oil and gas discovery company Isramco, was made possible through under -the-table payments to Israel Credit Lines' management.

"According to Ran, the Livnat Group paid Ran and the rest of [Israel Credit Lines'] management $3 million," Miron stated in the amended lawsuit. "An additional sum of $3 million was paid by the Maimon-Tsuff Group." The lawsuit continued that "these amounts were paid so that the controlling shareholders would ensure that the publicly-traded companies they managed would approve the deals [to sell the controlling stake in Equital]."

Lawyers for the Livnat Family, Tsuff and Maimon, Tsuff's partner and another major oil and natural gas investor, rejected Ran's claims as spurious.

Sealing the deal on the proposed settlement would be a major accomplishment for Miron. A year ago, some of the defendants tried to reach a direct settlement with the company's bondholders to close the case with a payment of NIS 21 million. While Miron recommended that bondholders reject that settlement, most supported it. However, a court rejected the validity of the bondholders' vote due to the receiver's claim that the majority vote was achieved with the support of bondholders with ties to the defendants who did not declare their conflict of interest. The current settlement proposal is close to three times the amount approved by the bondholders last year.

Representatives of the Livnat family, Tsuff, Maimon and Miron refused to comment for this article.

A gas platform seen from Israel's coast. Credit: Yaron Kaminsky

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