ERM advised Mekorot, Israel’s national water company, on a NIS hundreds of millions worth tender to carry out hundreds of water drills across the country. This is one of the largest tenders in the company’s history, designed with the purpose of doubling the number of water drillings executed by the company each year.
Asaf Rimon, Partner of ERM’s Energy & Infrastructure practice, acted for Mekorot together with associate Daniel Swissa Polak.
For further reading click here (Hebrew)
Israeli startup Zero Energy Solutions, which develops artificial intelligence-based climate technology for multi-room buildings, has raised USD 5.3 million. The investment round was led by an international construction company, and included investors such as an international accelerator and various private investors.
Nimrod Rosenblum, Co-Founder and Head of ERM’s Corporate and M&A practice, led the deal with associate Eitan Lahyani.
For more information click here (Hebrew)
Perhaps unsurprisingly, we at ERM are currently assisting several clients (both lenders and borrowers) to navigate material adverse change (MAC) provisions in this time of uncertainty.
A MAC clause is included in the vast majority of Israeli financing documents. As in other global financing documents, and broadly speaking, such provisions set a measure for when circumstances have changed drastically in respect of one party, so that the party will be deemed to have breached the agreement. Most commonly, the provision is applied to representations and warranties (e.g. ‘there is no litigation against the borrower that would result in a material adverse change to the borrower’s business’) or in events of default (giving lenders a catch-all provision that allows for the consequences of default to apply where circumstances have changed drastically).
Enforcing MAC clauses in Israel
The Israeli courts are generally willing to recognise the triggering of MAC clauses, especially in cases where the lenders were able to show that serious and longer-term doubts had arisen as to a borrower’s ability to repay its debt.
It should be noted however that apart from the usual considerations of the scope of the MAC clause, even a ‘subjective’ MAC clause (at the Lenders’ sole discretion) may be subject to the scrutiny of the Israeli court since any right under Israeli law is subject to the good faith principle. Moreover, as the principle of good faith is cogent under Israeli law, even an English law governed loan agreement brought before an Israeli court for enforcement, could be made subject to the good faith principle in certain circumstances, thus potentially limiting the Lenders’ discretion.
MAC vs Force Majeure
Whereas MAC clauses deal with foreseeable, yet undesirable, circumstances relating to a party, these clauses should be distinguished from issues relating to force majeure or frustration, which relate to unforeseen circumstances – for more on that, see our prior update here.
Is the COVID-19 pandemic a MAC
For many businesses in most industries, there is a strong chance that the COVID-19 crisis – being so unexpected, wide-ranging and deeply consequential – may well trigger MAC provisions. As always, the devil will be in the detail of the relevant contract. Assuming that the circumstances that would trigger the MAC cannot be argued to have frustrated the contract more generally (and thus provide ‘force majeure’ protection) – which is likely in view of Israeli courts’ outlook on frustration as set out in our previous note linked above – what can you do?
If you are considering relying on MAC clauses in your contracts, or are at risk of having MAC clauses enforced against you, do not hesitate to contact us for advice on how best to handle any concerns.
Since the outbreak of COVID-19 in Israel, we have witnessed three typical reactions with respect to M&A transactions: those who are aborting their transactions, before and after signing (whether they have a legitimate right or not); those who are still moving full steam ahead, sometimes subject to repricing and changes to the risk allocation matrix; and those who are well-funded buyers and are on the look-out for unique opportunities.
We were expecting to see many who fall within the first group, and we do see them. However, although it is still early days, a surprisingly large number of buyers and sellers are finding themselves in the second group. This is more common, naturally, in sectors less adversely affected by the virus (e.g., cybersecurity), as well as in sectors that actually benefit from it (digital work/life solutions, medical device, life-science, etc.). As a side note, it is interesting to see how COVID-19 helps separate ‘real’ technology businesses from those which merely wrap a real-world economy in a technological guise, and are actually real estate or travel businesses, for example. The third group is active to an extent, as many investors and buyers are still sitting on the fence.
In technology-driven Israel, M&A deals are forging ahead and are expected to continue to take place. However, carrying out such a transaction will require deeply updated thinking. Below are seven important points to consider when negotiating an M&A transaction in the COVID-19 era.
Every crisis presents an opportunity. This is even truer in a cutting-edge and highly dynamic market like Israel. The coming months will be challenging for all but may lead to extremely interesting outcomes for M&A players in such market.
Most importantly, we hope that everyone keeps healthy and safe.
Nimrod Rosenblum, Founding Partner and Head of Corporate and M&A
Given the vast economic impact of the Coronavirus (COVID-19) outbreak, governments around the world have been adopting a variety of stimulus packages aimed at helping businesses and individuals cope with the financial fall-out from the crisis. Israel’s caretaker government has also adopted several measures and is expected to adopt further measures in the coming days and weeks as the situation evolves. The most relevant of the existing measures are detailed below, together with some key highlights from other jurisdictions with important trade links to Israel.
Employees who are put on unpaid leave for a period of 30 days or more by their employer, are entitled to claim unemployment benefit during the period of unpaid leave, provided that they satisfy the conditions of entitlement prescribed by the Israeli National Insurance Institute. This provides a ready-made mechanism enabling businesses to reduce and manage their costs in light of the Coronavirus crisis. In addition, though independent contractors are not ordinarily entitled to ‘unemployment’ benefits, there is significant pressure to alleviate the wide-spread loss of income for vast swathes of independent contractors, and it is expected that regulations will soon be put in place to assist, including potential small loans of up to NIS 6,000 per month or potentially greater assistance – all still to be seen. For more details and information, please see ERM’s bulletin here, and refer to the National Insurance Institute of Israel’s information page here.
Loans dedicated to helping small and medium-size businesses that are struggling with cash flow difficulties as a result of the Coronavirus outbreak are being made available and backed by the Israeli Government.
Application should be submitted with the following:
Maximum loan amount will be the higher of: (i) up to NIS 500,000 or (ii) 8% of the company’s annual turnover.
Required Security: 10% of the approved loan.
Loan period: up to 5 years and with respect to the revolving loan facility, the option of a grace period of up to 6 months.
For submissions, please contact: (i) GSE http://keren.gse.co.il/, or (ii) BDSK http://keren.bdsk.co.il/.
For more details and information, click here. [Information in Hebrew]
The Israel Innovation Authority (IIA) has issued three calls for Israeli high-tech companies to submit plans to develop, test, and implement systems, products, or technological solutions to combat the challenges brought about by the Coronavirus pandemic and has pledged NIS 50 million for these purposes. Simultaneously, the IIA, together with the Ministry of Economy and Industry and the Manufacturers’ Association in Israel issued a joint call for proposal inviting factories manufacturing industrial products, designed to prevent, treat and contend with the Covid-19 virus, to submit requests for assistance for their technologically innovative R&D plans.
The IIA is offering financial support of 20%-50% of approved R&D expenses, and financial support of 60%-75% of approved R&D expenses for projects with the potential to have a unique effect on the advancement of the healthcare system and public health in Israel and abroad or that constitutes a technological breakthrough in its domain.
In order to expedite the submission, the request may be submitted immediately via a dedicated abbreviated submission form and will have a shortened response time – with responses expected within ten days of the last submission deadline.
The three calls for proposals are as follows:
For more details and information, click here.
Bi-monthly VAT reports and payments in relation to January and February 2020 have been postponed until 27 April 2020.
Monthly VAT reports and payments in relation to January and February 2020 have been postponed until 26 March 2020.
United Kingdom –
For more detail and information, click here.
United States of America –
For more detail and information, click here.
For more details and information, click here.
Germany –
We will be happy to answer any additional questions you may have. Feel free to contact any of us: Simon Marks, Partner , Jeremy Seeff, Partner , Bar Mor, Associate
ERM advised Ruby Capital on a NIS 5O million conversion loan given to Adi Yeadim LTD for the purpose of acquiring and improving land in Holon.
Gilad Maoz, Head of ERM’s Real Estate & Urban Renewal practice acted for Ruby Capital together with associate Eitan Lahyani
The spread of the COVID-19 (Coronavirus) pandemic in Israel and around the world has led to numerous guidelines from the Israeli Health Ministry, the latest of which strongly recommends organizations to allow their employees to work from home. ERM has addressed the labour law-related issues arising in this context in a recent bulletin. While remote working arrangements may be an important step to slow the community spread of COVID-19 from person to person, they present cybersecurity challenges and risks of data security breaches.
As a reaction to these challenges, the National Cyber Security Authority published the Telecommuting Protection Recommendations for Businesses and Organizations on March 11, 2020. These recommendations address security measures to reduce risks that could come with remote access to computer systems and the decreased possibilities to supervise employees. The following is a summary of these recommendations as well as additional measures that should be taken now to reduce cybersecurity risks.For the best identity related information, people can check here!
Technical Measures
Pursuant to the recommendations, remote access should be granted only through a device that is familiar to the company’s IT personnel, which usually means a company computer rather than the employee’s private device. Employees should log in through a secure interface only, the session should be recorded, and the recording should be saved for a certain time period.
The organization should not grant all of its employees general access to the entire information system. Instead, the advice is to separate the access to email from the access to sensitive information, which should be granted only in a restricted manner and to those employees who have a need to know such information. If such access is necessary, it should be granted only for the required period of time and only through the company’s computer. The access settings should be configured so that after a certain time in which the employee was not active the connection to the system is automatically disabled, in order to decrease the risk of unauthorized access.
Now more than ever it is important to make backups for all devices and the information stored therein. So that in the event a device is hacked or lost – both of which constitute a “security incident” – the information can be recovered.
Data Breach Response Plan
Each organization should also review its data breach and incident response plans to ensure that it is prepared for responding to any kind of security incident. If necessary, the plans should be updated to include the contact information of the IT security team and to ensure that the organization can respond adequately and swiftly also when working remotely.
Communication with Employees
In addition to learning how to utilize the payroll software, another essential aspect is to hold awareness trainings with employees on how to comply with security requirements. It is essential that the organization is aligned from top to bottom on these matters, even and especially when many employees have not been involved in information security before. As the current situation does not permit face-to-face training sessions, such training or instructions may be conducted as online webinars, or sent to employees as presentations or memos. Such training should include, among others, the following points:
If you want to address cybersecurity risks in your organization, we will be happy to assist you.
In these turbulent times, effective crisis (and contract) management could be the difference between sustaining contractual relationships, or, in the worst case, the failure to maintain a going concern.
Whilst, like with many contractual questions, our clients’ risk profiles will depend on the wording agreed, we set out below some overarching guidance about force majeure application and some key steps to take now.
What is ‘Force Majeure’
The doctrine of force majeure seeks to relieve contractual counter-parties of their respective obligations in circumstances that are deemed to have been unpredictable (and out of their control). This concept usually finds itself applied as part of the doctrine of “frustration” when one or more contractual counterparties find themselves, by no fault of their own, unable to perform obligations, or able to perform them only in such drastically different circumstances, so as to have ‘frustrated’ the intention of the parties when signing their agreement.
Pursuant to Israeli law, the doctrine may be adopted in two principal ways:
Contractual Provisions
It is common for contracts governed by Israeli law to contain an explicit force majeure clause, which sets out the circumstances which constitutes a force majeure event. These will then typically provide for the consequential remedies. In such cases, Israeli courts will first seek to interpret the language of the contract, so as to establish the parties’ intent. Where pandemics, health crises or analogous terms have been included, it is likely that a force majeure will be deemed to have occurred. Where there is no specific reference to such an event, it will be necessary to interpret the provisions to determine whether the list of events included was intended to be exhaustive or not, and whether other provisions may help to indicate the parties’ intent.
General Principles of Frustration
Where a contractual clause is interpreted not to include pandemic events within the scope of force majeure, or where there is no applicable clause, Israeli courts may be called upon to invoke general principle of ‘frustration of contract‘ pursuant to section 18(a) of the Contracts Law (remedies for breach of contract), 5731-1970, which sets out as follows:
“Where the breach of the contract is the result of circumstances which the breaching party, when entering into the contract, did not know about, was not required to know about or which it did not foresee and was not required to foresee in advance, and could not prevent them, and the fulfilment of the contract in such circumstances is impossible or is fundamentally different from the agreement between the parties, a breach of the contract would not warrant enforcement of the contract which was breached or compensation [for such breach];”
Israeli courts have only ever allowed for a defence of frustration in a handful of extreme cases (not even where the claimed frustration arose out of acts of war) on the basis that the Israeli courts have repeatedly held all such events to be foreseeable in Israel. Nevertheless, and given the unprecedented, and global scale of the current COVID-19 crisis, it is possible (though perhaps still not likely) that Israeli courts will adopt a broader and more permissive approach to claims of frustration in the current circumstances.
Naturally, given the nature of the remedy of frustration, this can only ever be fully assessed on a case-by-case basis.
What can you do?
Though none of us can know exactly how the current crisis will play out, we would encourage our clients to consider the following steps:
As ever, your Epstein Rosenblum Maoz (ERM) team stands at your side, ready to assist with all your contractual needs.
Please don’t hesitate to contact us.
Gideon Weinbaum, Partner Jeremy Seeff, Partner