WHAT IS PERMISSIBLE TO THE EMPEROR – IS FORBIDDEN TO THE TYCOON
Legend has it that many years ago there was a famine in one of the villages in Africa, and as a result of this, the fields did not produce any grain. The elders gathered, and after weighing up several alternatives, such as irrigation or importing grain, one of them came up with a revolutionary idea: “Let us make a law requiring the fields to yield grain, even when it does not rain.” The villagers were filled with pride at their legislators’ determination, guarding their rights in such a simple and elegant way. Even though the crops did not grow, nevertheless the original law still glorifies the book of rules of the same village. To those who believe that this is a fictional story, I would recommend carefully reading the bills raised here recently in the field of debt arrangements, and especially the proposal to impose a “Economic Infamy” on the controlling shareholder, where the Company under his control has a debt arrangement that includes a “haircut“and prohibit financial institutions from investing in his other issues.
Instead of seriously analyzing the problem and its roots, some of our legislators prefer to try to order it to disappear.
For the benefit of the confused reader, hereunder are some facts on the subject.
Contrary to popular rhetoric, the debt arrangements were not born as a result of a lack of desire of borrowers to repay their debts, but was caused by an inability to repay it. That is what happens when lending money to a business: When there is an economic crisis, on an economic level or a business level – the business can not repay its debts.
This is also the reason for the existence of rating agencies, which assess the risk of repayment of the bonds, and that the various bonds are issued with various securities and at different interest rates. Anyone who lends money understands that you may not always be able to collect it. The European debt crisis shows that even loans to countries which have traditionally been described as “lacking risk, are not always repaid.
IMPLICATIONS FOR THE CAPITAL MARKET
The first debt settlement did not begin at the Tel – Aviv Stock Exchange. It began a few hundred years ago, probably not long after the first bank borrower failed to repay his debts. Banks perform endless bank debt arrangements – deployment, change of conditions and forgiveness of debt when the bank debt is treated under bank secrecy, far from the spotlight and the press.
The debt settlement came into being only after the first lender concluded that the alternative is worse. This is because – in general – the bankruptcy process causes further impairment to the value of the business, which primarily affects the lender himself. Bankruptcy also affects the employees of the business, its suppliers and its customers. This is why in many countries the revised legislation actually encourages debt settlements and does not make it more not difficult.
This position is also accepted by the courts in Israel, from the time that the phenomenon was called positive “Corporate Recovery,” rather than the negative, populist name – “haircut”.
Israeli institutions also do well without the help of the legislature. The rhetoric that shows them as wretches who do not know to protect the rights of the members and need “a push” from the big brother, has no connection with reality and is part of the general wave of incitement against them.
The rather excessive preoccupation with the media and its nature sometimes makes it difficult for the institutional market to operate in an economical – rational business manner as is normal for the banking system.
The main impact on its pension funds the public actually absorbs from a decrease of its investments in its investments in bonds. In times of crisis, the decline in stock prices are far greater than the decline in bond prices. So why not also pass legislation to guarantee a minimum price per share?
The concept of a limited liability company is considered one of the main engines of the modern economy. Who-ever wants to make laws essentially lifting the corporate veil and imposing, retrospectively, personal responsibility for controlling shareholders to repay the debt, even though at the time of bond issuance buyers know very well that the controlling shareholder does not guarantee them – should think carefully about the long-term implications of such a step on the Israeli capital market and on corporate law in general.
Finally, it is difficult to understand why when the government company, Agrexco, collapsed, the country could well explain that it does not intend to pay its debts, since this related to bonds without government guarantees. Why then was a law not passed requiring the “owners” to guarantee the debt or avoid issuing them again forever? It seems that what is allowed to the emperor – is forbidden to the tycoon.
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