Tax Authority threatens Africa-Israel debt settlement

Moti Ben-Moshe
Moti Ben-Moshe

The Tax Authority is demanding that Africa-Israel, a bankrupt company, immediately pay NIS 245.5 million in taxes.

The Israel Tax Authority is upsetting the debt settlement between Africa-Israel Investments Ltd. (TASE:AFIL) and businessperson Moti Ben-Moshe, just before the votes on approval of the settlement at the creditors meeting. The Tax Authority decided today to issue a revised tax assessment for Africa-Israel in respect of its previous debt settlement in 2010. According to this assessment, the company must immediately pay NIS 245.5 million in taxes. The new assessment also states that Africa-Israel must cut its accumulated losses for tax purposes by NIS 600 million in respect of profits that were recognized without agreement in the previously completed debt settlement.

The new decision by the Tax Authority is liable to be a knockout blow for Africa-Israel in its current state, and to put an end to the efforts to save the company in the framework of a debt settlement. At the same time, since the company's debt settlement process is already being heard before the Tel Aviv District Court president, the parties to the settlement hope that Judge Eitan Orenstein will vacate the assessment and enable the second debt settlement to be completed in its current format. The Africa-Israel bondholders, who are owed NIS 3 billion, are voting on the settlement today.

On Thursday, meetings of Africa-Israel's creditors will take place, while trustees for the company's three bond series will vote according to the results of today's vote. If the arrangement is approved at the creditors' meetings, Africa-Israel, together with the bond trustees and Ben-Moshe, will submit the settlement for approval to Orenstein, who will also have to address the Tax Authority's claims and the fact that it chose to issue its tax assessment at the last minute before the debt settlement could be completed.

This saga began eight years ago with the completion of Africa-Israel's debt settlement in 2010. In the framework of this settlement, Africa-Israel controlling shareholder Lev Leviev agreed to inject NIS 750 more in cash into the company, while the bondholders agreed to write off part of the debt to them in exchange for a package of benefits that included, among other things, an allocation of shares in Africa-Israel and payment in shares of its subsidiaries that were public companies.

In late 2012, Africa-Israel submitted its reports on the first debt settlement to the Tax Authority, which was due to publish its assessment on the matter within three years of the date of the report. The Tax Authority, however, asked for another year, so that Africa-Israel received the assessment for the earlier settlement only in December 2016.

In this tax assessment, the Tax Authority ruled that Africa-Israel had no liability for payment in respect of the first debt settlement. At the same time, the Tax Authority claimed that Africa Israel had to reduce its losses from 2011-2012 carried forward for tax purposes to the coming years by NIS 450 million. The Tax Authority also ruled that the cost of the investment in fully owned companies for tax purposes should be increased by NIS 455 million.

Africa-Israel, however, elected not to accept this ruling, and appealed this assessment exactly one year ago. The Tax Authority thereby received an additional year to discuss the issue, and now, just before the debt settlement, has decided to reverse its previous decision by ruling that the company must immediately pay NIS 245.5 million in cash. It would be difficult to exaggerate the gravity of the blow that this decision constitutes for Africa-Israel and its bondholders, who have been striving for nearly two years to find investors to put capital into the company, which is in a state of bankruptcy.

Last month, at the end of a long proceeding, the bondholders had two main bids: one by Ben-Moshe and one by businessperson Naty Saidoff. The bondholders chose Ben-Moshe's bid, which gave them NIS 2.4 billion in proceeds, by a large majority. Since the appeal of the tax assessment, and all during the past year, during which the press headlines and economic websites were replete with reports about the negotiations for Africa-Israel's second debt settlement, the Tax Authority had nothing to say on the matter. Now, however, a moment before the submitting of the arrangement for court approval, the Tax Authority has chosen to go against its previous calculations by making a completely different assessment.

It should be noted that before the assessment orders were published, the parties held intensive talks in recent weeks in an attempt to find a compromise acceptable to everyone. Both Africa-Israel and Ben-Moshe, however, opposed the new calculation format by the Tax Authority and the new payments it is demanding, and the orders were therefore published today.

For Ben-Moshe, who has devoted great efforts over the past year to acquiring Africa-Israel, the blow is severe. It is much worse, however, for the company's bondholders, because it is liable to substantially reduce the proceeds they obtain in the debt settlement, and to postpone to much later the date on which they receive those proceeds.

In any case, Ben-Moshe does not intend to withdraw from the settlement, or to demand a change in its terms; he plans to try to convince the court to reject the new tax demands.

Published by Globes [online], Israel Business News - www.globes-online.com - on January 23, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Moti Ben-Moshe
Moti Ben-Moshe
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