Insolvency Law at Israel
Israel's insolvency framework has undergone significant reform with the enactment of the Insolvency and Economic Rehabilitation Law in September 2019, which replaced the Bankruptcy Ordinance of 1980. This new legislation aims to modernize insolvency procedures, promote debtor rehabilitation, and ensure equitable treatment of creditors. (The Insolvency and Financial Recovery Law - Israeli Lawyer Explains)
⚖️ Key Features of the Insolvency and Economic Rehabilitation Law
1. Definition of Insolvency
The law adopts two tests to determine insolvency:
Balance Sheet Test: When a company's total liabilities exceed its total assets.
Cash Flow Test: When a company is unable to pay its debts as they become due. (Insolvency 2022 - Israel | Global Practice Guides | Chambers and Partners, ISRAEL: An Introduction to Restructuring/Insolvency Law | Chambers and Partners)
2. Initiation of Proceedings
Insolvency proceedings can be initiated by either the debtor or creditors. Creditors may file for insolvency if a debt has not been paid on time, and the debtor is unable to pay its debts as they become due. (A Reform in Israel's Insolvency Laws | Barnea)
3. Restructuring Procedures
Court-Supervised Restructuring: A court-appointed trustee may take control of the company's assets and operations to formulate a rehabilitation plan.
Protected Negotiations: Public companies may initiate out-of-court negotiations with creditors to restructure debts while remaining operational, without the appointment of a trustee. (ISRAEL: An Introduction to Restructuring/Insolvency Law | Chambers and Partners, Bankruptcy, Insolvency & Rehabilitation Proceedings in Israel (Updated) | International Lawyers Network - JDSupra)
4. Liquidation Procedures
Voluntary Liquidation: Initiated by the company's shareholders when the company is solvent.
Involuntary Liquidation: Commenced by creditors when the company is insolvent.
Receivership: Secured creditors may appoint a receiver to take control of specific assets to satisfy their claims.
5. Debt Arrangement
Debtors may propose a debt arrangement to creditors, which, if approved, becomes binding. The proposal must be approved by a majority of creditors representing at least 75% of the debt value present at the vote. (New Amendment to the Israeli Insolvency Law - Herzoglaw | Israeli Law Firm, Israel collection profile)
6. Priority of Claims
The law establishes a hierarchy for the distribution of assets:
Administrative Costs: First priority.
Secured Creditors: Second priority.
Unsecured Creditors: Third priority. Special provisions may apply to certain creditors, such as employees and tax authorities. (Israel collection profile, New Amendment to the Israeli Insolvency Law - Herzoglaw | Israeli Law Firm)
7. Debtor's Obligations
Debtors must comply with various obligations, including:
Providing detailed financial reports to the court-appointed trustee.
Complying with payment orders set by the court.
Not accumulating additional debts. Failure to comply may result in the termination of proceedings. (Step-By-Step of Voluntary Liquidation in Israel - HG.org, Insolvency process obligations: - Law office in Israel)
8. Director's Liability
Directors may be held personally liable if they knew or should have known that the company was insolvent and failed to take reasonable steps to mitigate the situation. However, a presumption exists that directors took reasonable steps if they evaluated the company's financial position and sought professional assistance. (Restructuring Israel’s insolvency law | IFLR1000)
🕒 Timeline of Key Reforms
2019: Enactment of the Insolvency and Economic Rehabilitation Law.
2021: Introduction of Temporary Provisions to facilitate debt arrangements during the COVID-19 pandemic. (A Reform in Israel's Insolvency Laws | Barnea, New Amendment to the Israeli Insolvency Law - Herzoglaw | Israeli Law Firm)
RELATED Blog
0 comments