Benchmarker / Alshech Hands Tshuva the Bill

Public and social realities lie at the root of Alshech's decision, the first time an Israeli court has portrayed these realities in such vivid color.

The anguish of small savers facing a haircut was at the crux of Judge Varda Alshech's ruling that a single creditors' meeting should convene to approve the debt settlement proposed by Yitzhak Tshuva for Delek Real Estate bondholders. Her solution to the savers' misery is ethical and public-spirited.

Alshech didn't hesitate to compare Tshuva with Lev Leviev and the enormous debt settlement at his Africa-Israel company, over which she also presided. Leviev emerges from the comparison with a badge of honor, as having fought for Africa's survival. Tshuva, who leveraged Delek Real Estate and is now prepared to let investors take the fall with it, comes out sullied.

Public and social realities lie at the root of Alshech's decision, the first time an Israeli court has portrayed these realities in such vivid color. For example, bondholders aren't all cut from the same cloth: They include people with modest savings for whom it would be financially and physically difficult to attend the debt settlement meeting, as well as institutions legally required to participate in voting and with the financial capacity to do so.

The public and social problem, Alshech explained, is that the institutionals' managers often prefer not to rock the boat, and might therefore consent to a debt settlement less than optimal for the saving public.

In another extraordinary remark, the judge asserted that the Israeli capital market lacks a culture of extralegal enforcement. In other words, the market doesn't impose economic or moral sanctions on controlling owners who leverage themselves and don't repay their debts afterward.

Having a single creditors' meeting puts the large institutionals at an advantage. Nevertheless, Alshech did all she could to ensure that small savers' voices will be heard and impel Tshuva to dig into his own pockets. To do this, she needed to resolve two problems:

1The timing problem. On one hand, in a debt settlement where the company continues functioning after the haircut, all creditors have equal standing. On the other hand, like in the Africa-Israel settlement, there are short-term bond series with repayment due earlier and long-term series requiring a longer wait.

Alshech therefore ruled that an equitable debt settlement must provide different outcomes for short and long series. That's how she also ruled in the Africa-Israel debt settlement, where holders of short-term bonds received more cash than those holding long-term bonds.

2 The institutionals problem. Here, Alshech set a precedent. There are "furious" savers, she wrote, who think any settlement that the institutionals agree to won't be optimal. Therefore, she said, these savers must be allowed to speak their minds - and Tshuva will have to stand before them and persuade them that a haircut is justified.

Alshech called this "the price of the settlement" - the public price a tycoon who doesn't repay his debts must pay.

To ensure that this happens, the judge ruled that the bond trustees must convene meetings for each series, and afterward, they will be able to vote in the collective name of all the investors in that series. In this way, she effectively put the trustees on an equal footing with the institutionals.

The decision has a particularly large impact on the short-term B25 bond series, with attorney Guy Gissin as trustee. This series could constitute a decisive block, with 28% of the final meeting's votes. Series B25 is mostly made up of small savers who wouldn't have wielded any influence otherwise. But Alshech has provided them with an outlet for their fury.