Professional teams | Uncovering an “accounting trap”

A company whose shares were traded on the Tel Aviv Stock Exchange conducted negotiations to enter as a partner in a Georgian company dealing in real estate, tourism and entertainment in the capital city Tbilisi, by purchasing shares from a foreign partner in that company, which had friendly relations with the owner of the public company.

The Israeli company, as a traded company, was required to perform an orderly, documented due diligence process to report to the appropriate authorities in Israel.

A four-day visit to Tbilisi by the traded company, which was arranged in advance with various professionals, some of whom were employees of the company being examined while others were independent or people of the authorities, resulted in a due diligence report being composed. That report not only detailed the moves required to complete the acquisition of the shares, but also allowed the company selling its shares to take actions to prevent an “accounting trap”. That trap had been planned in advance by the local partners and was going to cause the foreign partners a financial loss of millions of U.S. dollars.