“The deterioration of Mega likely followed from two significant decisions by the controlling interest in the company: distributing substantial dividends and transferring the real estate assets from Mega to a sister company which then charged Mega rents which are at the very least mired in controversy,” said the Mega trustees, Gabi Trabelsi and Adv. Ehud Gindes, in their initial report filed Wednesday at the District Court on the liability of parent company Alon Blue Square for Mega and the recent debt arrangement approved in July 2015.
The report’s conclusions sharply criticized the controlling interest in Mega claiming they paid dividends against Mega’s interest, misappropriated funds, and failed to fulfill their liabilities as part of the debt arrangement.
The trustees petitioned the court for permission to launch an investigation into the company’s crash in part to investigate the Mega owners’ role in it.
The trustees criticized the owners for failing to properly disclose the losses accumulated by Mega, noting that Alon Blue Square (a public company) did not publish Mega financial statements during the years in which the company suffered significant losses and allowing them to be effectively erased by the operations of other holdings. As the trustees noted, this was legal because of the lenient American disclosure rules which apply to Blue Square, a dual-listed company.
The report showed Blue Square and Alon committed under the debt arrangement to create a “capital cushion” of NIS 800 million to support Mega’s operations; the “owners donation” was intended to provide Mega long-term financial stability and avoid additional concerns by employees and suppliers.
However, the trustees noted there was excessive reliance on “financial leverage” over the years taking massive loans from banks and financial institutions to fund the operations of large companies (like Mega, Alon fuel stations, Blue Square Real Estate), with the loans being repaid from the profits.
“There is no doubt Mega arrived at the first debt arrangement with no capital and while it was continuing to suffer significant losses each quarter,” wrote the trustees.
According to Mega’s request for a stay-of-proceedings, Blue Square did not fulfill its commitment to inject NIS 320 million into the company. The trustees calculated Blue Square transferred Mega NIS 202 million from July 15, 2015 when the debt arrangement was approved and January 17, 2016 when Mega petitioned the court.
The trustees also discovered Eden Teva Market has been generating large losses for the Alon Group. Apparently, after a few years of negative results, the controlling interest decided to “transfer” to Mega the commitments Blue Square made in the agreement with Eden Teva Market. Thus, from 2010-2014, Eden Teva added more than NIS 100 million in losses to Mega.
The trustees believe an appraiser should be appointed to evaluate the proper rents Mega should have paid Blue Square Real Estate after its assets were transferred.
As part of their petition, the trustees asked the court to order Blue Square to hand over the drafts of the debt arrangement and to approve the contracting of an appraiser.
Mega workers committee chairman Eyal Eli said, “The union will do everything in its power to make sure the owners and the directors pay for the failures which led to the collapse of Mega; we welcome the trustees’ petition.”
Published by Globes [online], Israel business news - www.globes-online.com - on February 25, 2016
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