Cos face ruin as gov't wants investment grants repaid

ID Metal Works from Karmiel Photo: Courtesy ID Metal Works
ID Metal Works from Karmiel Photo: Courtesy ID Metal Works

ID Metal Works from Karmiel is among many Israeli companies that claim the government is dealing them a lethal blow.

The state's long memory is putting pressure on dozens of companies. Industrialists and company owners who previously received grants from the Israel Investment Center in the Ministry of Economy and Industry (formerly the Investment Promotion Center) on one of the investment tracks for aid to industry are complaining that now, years later, they are being required to make reimbursement to the state amounting to millions of shekels in some cases. The Investment Center is alleging that the parties who received the aid did not comply with some or all of the conditions they undertook to fulfill when they received the grants.

The grants were given to the companies under the Law for the Encouragement of Capital Investment for projects such as expanding plants and production lines, hiring more employees, and meeting minimum export targets. Following the demands made over the past year by the Investment Center, headed by director Nachum Itzkovitz, to dozens of companies that failed to meet all or some of the conditions for obtaining the grants, dozens of administrative petitions were filed in Administrative Courts asking for the cancelation of the state's demand for payment.

NIS 850,000 grew to over NIS 1 million

One of the companies that recently petitioned the Jerusalem Administrative Court was ID Metal Works from Karmiel, which has 17 employees. The company received a NIS 850,000 grant from the Investment Center 20 years ago, and is now being required to pay the state NIS 1.05 million.

The grant was given to the company when it dealt in textiles, and developed a unique mechanization process designed to streamline production for companies in the sector. In exchange for its grant, the company undertook to increase its staff to 30 employees. Since that time, however, the textile sector in Israel entered a crisis and collapsed, an important customer of the company shut down, and a shortage of professional personnel made it difficult for the company to find employees with suitable expertise.

In view of the changes in the market, the company changed direction, and now produces components for the defense industries. ID Metal Works owner and CEO David Vaknin says, "At that time, we were required to meet the target of employing 32 workers, but we were unable to find the right employees, because there were no people in the economy with such expertise. Later, there was security tension, the Second Lebanon War broke out, and the Israeli textile sector collapsed, with textile companies moving their production lines overseas."

Vaknin did not give up; he set off in a new direction. "We now produce components for the defense industries and are continuing our business, although we have received offers to move our production lines overseas. My plant is considered a strategic supplier for the defense industries, but now the state is drawing up accounts for a grant given to my plant many years ago, and also demanding interest and linkage."

In a petition filed by Vaknin through Advocate Shira Bas Rosen and Advocate Liora Bein-Alon from the Prof. Bein & Co. law firm at the Jerusalem Administrative Court, he is demanding the cancelation of the plant's debt to the state. "The company faced a difficult economic situation in the past, including the textile sector collapse in 2008, but nevertheless managed to keep its head above water and employs workers in the outlying areas. To demand payment of NIS 1 million will deal it a fatal blow," Rosen Bas told "Globes." "The Law for the Encouragement of Capital Investment was designed to benefit companies and the Investment Center still has broad discretion to take the exceptional circumstances into account and refrain from a decision that will harm companies, which is the opposite of the Investment Center's purpose."

Bas Rosen said that her firm was handling at least 10 similar cases of companies and plants that received state grants many years ago and were now being required to repay them on the grounds of not meeting the conditions set at the time. "At the time the grants were provided, the full extent of possible circumstances that a company whose grant was approved would have to face many years could not have been predicted, and the legislator therefore gave the Investment Center the possibility of exercising discretion when demanding repayment of the money. In general, it has been observed in recent years that the Investment Center is eager to monitor the programs, but If it has changed the rules under which it operates, or has made them more rigid, it should not apply this retroactively. The situation is disproportionate and unreasonable."

"The money involved belongs to the taxpayers"

The Investment Center is also aware of the increase in the number of petitions filed at the Administrative Courts following its demands for reimbursement of all or some of the grants provided to industrialists and companies many years ago.

Investment Center sources estimate that 20 administrative petitions have been filed for legal adjudication this year, and that the total alleged amount owed to the state by industrialists in these cases is NIS 50 million.

A senior Investment Center source attributed the mass of administrative petitions to an amendment in the Law for the Encouragement of Capital Investments, under which a company whose case had been discussed and rejected in the Investment Center's institutions could appeal the decision to the law courts. This situation replaces the previous mechanism designed to settle and decide disputes of this type, which had been heard individually in each case in which a company objected the Investment Center's decision.

"The money involved belongs to the taxpayers," a senior Ministry of Economy and Industry source told "Globes." "There are quite a few cases in which industrial firms that received millions of shekels in grants and did not comply with the terms under which the grants were provided have been required to reimburse very small amounts to the state, while taking their situation into account. No one wants to persecute these companies, and a company that proves that it did not meet the targets set for it for substantive reasons will get a positive response and help."

The flow of demands for repayment of the grants and the accompanying stream of administrative petitions follows a check of hundreds of grants provided by the state since the 1990s to enterprises all over Israel. The Investment Authority has checked 500 such cases in recent years.

"No arbitrary decisions have been taken here," a senior Ministry of Economy and Industry source told "Globes." "One of the principles guiding us in examining these cases is also the effect on the company if it has to pay back the money. We check the equity of each company, its profit margin, dividends withdrawn by the owners, and the environment in which it operates. We take all these factors into account. In this way, the state has recovered NIS 35 million in the past 30 months previously granted to companies that did not fulfill the commitments they made. This money will be given to other companies in the form of grants."

With respect to ID Metal Works, the source stated, "The company was aware and informed that it had not complied with the plan and the targets for employment and sales turnover. The company appealed to the Investment Center's appeals committee, and its arguments were rejected. Any legal judgment made in this question will be acceptable to us."

Published by Globes [online], Israel Business News - www.globes-online.com - on October 23, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

ID Metal Works from Karmiel Photo: Courtesy ID Metal Works
ID Metal Works from Karmiel Photo: Courtesy ID Metal Works
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