Last Sunday, when the non-bank credit company’s board of directors learned United Credit On the mismatch of millions of shekels between checks she actually received and the entries of those checks in the company’s books, the board, headed by former Finance Minister Moshe Kahlon, approved an extension of one year of liability insurance for officers and directors.
This is probably a coincidence, as the existing policy expires at the end of June, so the board of directors had to make a decision on its matter anyway. However, the timing sharpens the importance of the policy for the activities of senior executives in every company, private and certainly public.
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Purchasing a policy of liability of officers and directors is intended to enable company executives to fulfill their role without fear that they are exposed to liability that will result in payment of their private money for actions taken. The new policy for Yonet executives, which will be valid until June 2023, is within the limits of liability of up to $ 5 million for one case or the entire period.
In the case of Yonet, it appears that the policy will not be activated, as as first reported in Globes, the controlling shareholders of the company have undertaken to make up for the financial shortfalls created, if these are not found. In a report released by Yonet to the stock exchange last Thursday, the company confirmed that the controlling shareholders, Shai Panso and Shlomo Isaac, have pledged that if the company fails to locate and collect the missing checks by December 31, they will transfer to the company the amount Yonet will not be able to collect.
The market estimates that the $ 5 million liability limit should cover the exposure of officers, if any. The insurance market further estimates that even if there is insurance damage, the one who will ultimately be sued is the company and not its officers. In any case, it seems that most of the damage caused to shareholders so far is not insurable, after the company’s share lost 75% of its value in the past year.
It will be recalled that in May 2021, on the eve of the decision to appoint Kahlon as chairman, Yonet shares were traded at a price of NIS 28.5, while at the beginning of this week the price was only NIS 7, reflecting a modest market value of NIS 47 million for Yonet.
Who are the regulators who oversee a non-bank credit company
The sequence of unusual events that has accompanied Yount Credit throughout the past year – from the criticism of the generous terms of employment of the chairman, former Finance Minister Moshe Kahlon, through the violent robbery of a courier who carried NIS 3.5 million from the company, to missing checks at the company’s branch in Nazareth. In the amount of almost NIS 8 million, it has so far damaged the company’s reputation, its officers and, of course, investors. 75% in the last year.
This begs the question of who should protect Yonet Credit’s customers, from those investors, through the borrowers to those who lend the company the capital it in turn lends to its customers. The answer is that non-bank financing companies are not supervised by a single regulator, nor does the multiplicity of supervisors guarantee full coverage.
Capital Market Authority – the consumer angle
The regulator defined in the law as the Supervisor of Non-Bank Lenders is the Capital Market Authority, but according to the law it is defined as the one who is responsible for the consumer supervision and not the stability of the companies. The Capital Market Authority, led by Dr. Moshe Barkat, did focus on the consumer angle, that of the borrowers, and in this aspect no problem is expected, because they have already received the loan from the company, which is not allowed to change the loan terms since it is a signed contract between the parties.
Note that in the event of a bankruptcy on the part of Yonet, although the chances of this are nil, borrowers can benefit from the event, as happened in the UK, for example, where borrowers from bankruptcy money changers who went bankrupt returned lower amounts to the company than a borrower.
The Securities Authority also has a touch on the situation
Another regulator that has an impact on the event is the Securities Authority, headed by Anat Guetta, and it focuses on the aspect of investors when it comes to the company’s reports. The Securities Authority has tools at its disposal to take action against Yonet, such as imposing sanctions on the company, and we will mention that it has yet to decide how to handle Yunit after it did not meet the deadline for reporting its financial statements for the first quarter (May 31).
As this is a non-banking company, the Supervisor of Banks is not part of the regulators who supervise it, but he supervises the banks that form a significant part of the sources of funding, so if there is concern about Yonet’s instability, he may have to intervene in providing Yonet funding.
Yonet’s reports state that “the company is highly dependent on raising funding from other lenders and also, having sufficient credit facilities with financing entities,” noting that last August alone agreements were signed with three lenders to grant a credit facility of NIS 40 million (with an option to expand to NIS 60 million )
The person who may have been involved in the events recently reported by the company is the Israel Police, if the investigations carried out by Yonet Credit reveal a suspicion of a criminal offense that requires the opening of a police investigation.
“Narrow interpretation of ‘personal responsibility'”
It is not only in the insurance industry that it is noted that the person who is exposed to claims for the exceptional events in Yonet, at least according to the information currently available, is the company itself and not its senior executives personally. The gaps between the company’s responsibilities and those of the officers’ responsibilities have often been brought to the court’s attention in the past, and Supreme Court President Esther Hayut has also addressed the issue in the past, stating that “an officer’s liability does not stem from the corporation’s liability.”
In a ruling by the Statue Company v. The General Cooperative Workers’ Company in Israel, Judge Hayut wrote that “the corporation operates through the organs and its officials. This fact does not detract from the corporation’s responsibility as a separate legal entity, but it also does not impose liability on the organs and officers of the corporation.
“Their liability derives as stated from the question of whether they personally complied with the elements of the cause.
Insurance counsel Adv. Uri Orland notes that the key to the liability of officers lies in the duty imposed by the legal system on plaintiffs, to prove the existence of a “personal” responsibility of the officer to apply tortious liability to him.
“In practice, the legal system has created its own tools to protect officers, as these are not protected by the company’s incorporation screen, which as a rule currently only protects shareholders and is difficult to lift,” Orland says. “One of the tools created by the legal system, in addition to those in law (exemption, indemnity and insurance) to protect officers is to provide a narrow interpretation of what the Companies Act calls ‘personal liability’.
“In order to sue an officer, it must be proven that he owes a personal duty of care to the plaintiff, that he violated the duty, that damage was caused and that there is a causal connection between the violation and the damage. This is not easy to prove,” explains Attorney Orland. “Officers according to whom they ‘failed in supervision’ must be rejected.”
Yonet’s case puts at least one officer under a potential lawsuit threat, as far as his conduct is concerned. Yonet reported last week that an investigation by an external examiner appointed by her revealed preliminary findings that there was a concern that the company’s CEO, Tzachi Ezer, who is also one of its controlling shareholders, allegedly took money from the company in an amount that was not material to it (apparently). As far as the question is concerned, return immediately any amount he took, as much as he took and he was asked to stay until the end of the inquiry on vacation.
Therefore, as the details become clear, it will become clear whether there is a ground for a personal lawsuit against him. Still, the insurance company that drafted the “Officers’ Liability Policy” would have to protect him, unless it was determined at the end of the road that he had a “criminal thought,” that is, awareness of the fact and its consequences.
Sequence of events that led to the postponement of the publication of the reports
Recall that the non-bank credit company was supposed to publish its financial statements for the first quarter of 2022 by the end of May, but on the last trading day of the month, late at night, announced that due to fear of lack of checks the reports would not be published.
The company also announced the appointment of an external examiner. On Thursday, Yonet reported that the external examiner had discovered, After going through all the checks in the company’s coffers, that are missing in the coffers Checks issued at its branch in Nazareth in the amount of NIS 7.7 million.
At the moment, it seems that there is no connection between the non-compliance regarding checks, the money taken by the CEO and the robbery incident from last month. Rob the amount in question, which is significant for the company.