Judge slams all concerned in Urbancorp bond offering

Judge Eitan Orenstein  photo: Eyal Yitzhar
Judge Eitan Orenstein photo: Eyal Yitzhar

Tel Aviv District Court Judge Eitan Orenstein: I look at the failures, to use judicial understatement, and I thought I'd seen everything...

The Urbancorp fiasco reached the Tel Aviv District Court today. The court vice-president, Judge Eitan Orenstein, sounded decisive about the position of Canadian construction company Urbancorp, and was spoke his mind unsparingly about those responsible for its debt offering on the Tel Aviv Stock Exchange.

"There is unequivocal cause here for repayment," Orenstein said in the course of the hearing, and throughout it he continued to criticize what had taken place surrounding the company's bond offering. "I look at the failures, to use judicial understatement, and I thought I'd seen everything…" he remarked on one occasion.

Deloitte, which prepared Urbancorp's financial statements in advance of the offering in Tel Aviv in December, did not send representatives to the special hearing convened in the court today despite the Passover holiday. The offering underwriter, Apex Issuances, also did not bother to send a representative, nor was anyone from the Israel Securities Authority present in the courtroom. "Where's the Authority? The underwriter? The auditors?" Judge Orenstein asked during the hearing. (Deloitte and Apex Issuances said they had not received summonses to appear at the hearing.)

Last December, Urbancorp raised NIS 181 million in an initial bond offering on the Tel Aviv Stock Exchange. (Last week, trading in these bonds was halted after yields on them rose to junk bond levels, and it has not been resumed.) Five months after the offering, through its subsidiary companies, Urbancorp filed for protection from its creditors in the Canadian court. The application was made through the subsidiaries in order to avoid legal proceedings in Israel, although in the bond trust deed Urbancorp undertook that any legal proceedings would take place here.

In response to the bankruptcy filing, the bond trustee, Reznik Paz Nevo Trusts Ltd., asked the court for an urgent hearing on the state of the company. The court issued an injunction yesterday forbidding any disposition in Urbancorp's assets. The hearing took place today. The bond trustee requested that the company should be placed in a creditors' arrangement under section 350 of the Companies Law, and that a trustee should be appointed on behalf of the court to work with the trustee appointed in Canada for the subsidiaries.

Asked by the judge what was the main remedy that the creditors sought, the trustee's counsel, Adv. Yoel Freilich, said, "The company breached its commitments, failed to publish financial statements, and brought its subsidiaries to insolvency. The creditors should therefore take over control of the company." Nevertheless, Freilich did not ask for the immediate liquidation of Urbancorp, presumably because that could harm the negotiations that Urbancorp is conducting for the sale of some of its construction projects to another, stronger company called Mattamy.

Since yesterday, Urbancorp has been represented by Adv. Gad Ticho of Caspi & Co., after both Shimonov & Co. and Agmon & Co. resigned as the company's counsel last month. Ticho opened by saying that the company had no objection to leaving in place the injunction that the court issued yesterday, but he did express opposition to any other hurried action in favor of the bondholders, since he had had insufficient time to prepare, and since "there is no need to rush when we are in the middle of the Passover holiday and in any case the bondholders meeting takes place only on Sunday."

Asked about the legal proceedings in Canada, Ticho answered, "It's not, how should I put it? the Wild West." He said there was nothing to prevent the Canadian lawyer hired by the bond trustee approaching the local trustee and Urbancorp's legal counsel and asking for information. "For my part, insofar as I have influence, I will warmly recommend the company and its controlling shareholder to request, or at least not to oppose, the transfer of any information to them and also to cooperate with the bond trustee. I don't see any problem with that, and I don't think that a court order is necessary. If they find within two or three days that there is actually no cooperation, the bond trustee can approach the court in Israel again."

Adv. Freilich stated in response that every lawyer who knew what was happening behind the scenes had resigned. "These are companies that five months ago were worthy of having NIS 180 million invested in them, and now they are filing for bankruptcy. There is no doubt that while they were publishing unaudited financial statements, their lawyers were already working on insolvency proceedings. As far as the company and its controlling shareholder are concerned, there is a clear situation of fraud," he said.

Before the hearing ended, Judge Orenstein asked for the opinion of the representative of the Official Receiver, who recommended that the judge should grant the bondholder trustee's request for the appointment to Urbancorp of a trustee or observer on his behalf for a limited time, at the end of which the trustee or observer would present a concrete proposal to the court. This could be anything from a debt arrangement to liquidation.

Published by Globes [online], Israel business news - www.globes-online.com - on April 25, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Judge Eitan Orenstein  photo: Eyal Yitzhar
Judge Eitan Orenstein photo: Eyal Yitzhar
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