Israel: Restructuring & Insolvency (3rd edition)

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This country-specific Q&A provides an overview to restructuring and insolvency laws and regulations that may occur in Israel.

This Q&A is part of the global guide to Restructuring & Insolvency (3rd edition). For a full list of jurisdictional Q&As visit

  1. What forms of security can be granted over immovable and movable property? What formalities are required and what is the impact if such formalities are not complied with?

    The Pledges Law, 1967 (hereinafter: "the Pledges Law") is the general law which governs the conditions for creation and realization of pledges, and it would apply where there is no specific legislation which overrides it.

    Pursuant to provisions of the Pledges Law, a Pledge is created by agreement between debtor and creditor, but it would only be in effect towards other creditors when deposited or registered in the relevant registries.

    Rights in an immovable property may only be pledged by creation of a mortgage, which is subject to provisions of the Land Law, 1969. A mortgage shall be registered at the Land Registry. Pledging of rights in an immovable property which is not registered at the Land Registry shall be subject to provisions of the Pledges Law.

    The Companies Ordinance [New version], 1983 (hereinafter: "the Companies Ordinance") governs that a Pledge on corporate assets – both movables or immovable – shall be registered at the Registrar of Companies within 21 days from its creation, otherwise it would not be effective towards creditors and towards an Officer appointed for the company in an insolvency proceeding. Therefore, in order that a Pledge on corporate immovable property will be effective towards a creditor, it should be registered twice – both at the Registrar of Companies and at the Land Registry.

    Another type of pledge governed by the Companies Ordinance is a floating pledge. Such a pledge is crystallized upon occurrence of certain events listed in the debenture by which the pledge was created. In order for a floating pledge to be effective, it must be registered, as any pledge on company assets, at the Registrar of Companies.

  2. What practical issues do secured creditors face in enforcing their security (e.g. timing issues, requirement for court involvement)?

    Currently (May 2019), the issue of involvement and supervision on the process of collateral realization by a secured creditor is not sufficiently governed by the Legislator. However, the Supreme Court has specified the principles to be followed by a secured creditor when realizing their collateral, and has specified guidelines for supervision of collateral realization.

    Thus, the Supreme Court ruled that a secured creditor wishing to realize their collateral separately from the insolvency proceedings, must report to the Officer or to the Official Receiver in conformity with statutory provisions.

    It was also stipulated, that in general, if the value of the pledged asset is lower than the debt owed to the secured creditor, there is no need for prolonged Court supervision over the realization proceeding. However, if the value of the pledged asset exceeds the debt amount, Court supervision would be generally applied (through the Officer). The goal of such supervision is to protect the debtor's interest and that of unsecured creditors from abuse of the power of the secured creditor.

    It was further stipulated that in exceptional cases, such as deliberate avoidance by a secured creditor of conducting realization proceedings or significant delay in such proceedings, the Court is authorized to apply stricter supervision, even instruct the joint realization of collateral – by the Officer and by the Receiver on behalf of the secured creditor, but only in truly exceptional cases.

    Note, that in recovery proceedings, unlike in dissolution proceedings, the Officer may use or even sell a pledged asset (subject to consent of the secured creditor and to Court approval) provided that such use or sale is required for company recovery and appropriate protection has been granted to the secured creditor.

    In September 2019, the Insolvency and Economic Recovery law, 2018 (hereinafter: "the Insolvency law") will become effective – a new codification which consolidates all insolvency legislation, which is currently governed by multiple laws.

    The Insolvency law posits the economic rehabilitation of the debtor as a primary value. For this reason, the Insolvency Law stipulates restrictions on collateral realization of debtor assets, in order to secure this primary value.

    Thus, for example, the Insolvency Law stipulates that if the Court instructed that the corporation will be operated in an attempt to reach its economic recovery – secured creditors may only realize the pledged asset subject to the Court approval. The Insolvency law also governs the procedure whereby a pledged asset may be realized, after permission was granted by the Court. The new law further stipulates that the Officer may, at any time, redeem the pledged asset and that such redemption would be subject to provisions of the Pledges Law.

    Moreover, the new Insolvency Law stipulates that a floating pledge would only apply to assets held by the company upon issue of the order to initiate proceedings, and that a creditor secured by a floating pledge would be repaid out of company assets at up to 75% of the proceeds from realization.

  3. What is the test for insolvency? Is there any obligation on directors or officers of the debtor to open insolvency procedures upon the debtor becoming distressed or insolvent? Are there any consequences for failure to do so?

    Over the years, Israeli Law has developed two tests for insolvency: The balance sheet test and the cash flow test. The balance sheet test considers total assets of the debtor against total liabilities thereof. When total liabilities of the debtor exceed total assets, the debtor is deemed to be insolvent according to this test. Conversely, the cash flow test considers whether the debtor could fulfill their obligations when due. Current Law has not decided between these two tests, and the Court rulings recognizing both as valid tests for proving insolvency.

    In the proposed Insolvency Law, the balance sheet test was abandoned as a test for definition of insolvency, with only the cash flow test adopted. However, the strong disagreements caused by this topic resulted in amendment of the law, with both tests integrated as alternatives for the definition of insolvency.

    Along with existing duties of officers towards the corporation (such as fiduciary duty and duty of care pursuant to the companies law), the new Insolvency law imposes further liability on company directors or on the CEO with regard to reducing the scope of corporate insolvency. According to this provision, a director or CEO who knew, or should have known, that the corporation is insolvent, and did not take reasonable measures to reduce the scope of such insolvency, may be liable for damage incurred to creditors of the corporation due to their omission. The new law lists several actions which if taken would constitute a presumption whereby the director or CEO did take reasonable measures to reduce the corporation's insolvency; these actions are: (a) Obtaining assistance from parties specializing in corporate recovery; (b) Negotiating with debtors of the corporation to agree a debt settlement; (c) Launching insolvency proceedings.

  4. What insolvency procedures are available in the jurisdiction? Does management continue to operate the business and / or is the debtor subject to supervision? What roles do the court and other stakeholders play? How long does the process usually take to complete?

    The main types of insolvency procedures available under Israeli Law are: insolvency proceedings for individuals pursuant to the Bankruptcy Ordinance; Corporate liquidation proceedings pursuant to the Companies Ordinance; settlement and agreement proceedings pursuant to the Companies Law.

    As noted, once the Insolvency Law would become effective, it would incorporate all of the various procedures. Pursuant to provisions of the Insolvency law, rather than filling a different motion for each type of procedure – the applicant would file a motion for an order to initiate proceeding, and the Court would rule what is the appropriate track for the corporation – rehabilitation or dissolution. In cases where the appropriate proceeding is unclear, the Court may rule that the corporation will be operated for a short while by a Trustee prior to the determination whether the company is facing recovery or dissolution.

    In the great majority of corporate insolvency proceedings, an Officer is appointed to take over the management authority from current management of the company. In some cases, especially where managing the business calls for specific expertise, the Officer may contract with existing management (which, naturally, would be subject to supervision by the Officer) or with other professionals. All action by the Officer is subject to Court approval and to supervision by the Official Receiver, who is a party to all insolvency proceedings. In recent years, all insolvency proceedings for individuals have also been carried out by Officers.

    The duration of insolvency proceedings depends on the nature of the proceeding, with a distinction made between individual and corporate insolvency proceedings.

    With regard to individual insolvency proceedings, current legislation does not specify clear outline for the duration of such proceedings. Therefore, the Official Receiver has recently reformed such proceedings, a reform which was also incorporated in the new Insolvency Law. This reform divides insolvency proceedings for individuals into two parts – first, a period in which the debtor's financial standing and behavior will be reviewed. The time allocated for this period is 18-24 months. At the end of the review period, a rehabilitation program would be specified for the individual – after which they would be discharged from their debts. In some exceptional cases, the debtor may be immediately discharged from their debts. The duration of this period is dependent on the program, program objectives and debtor capabilities.

    Corporate insolvency proceedings may take several years, with complex proceedings taking even much longer. The operation period of a company targeting recovery would typically last for several months (According to statutory provisions, the duration of a stay of proceedings is set at nine months, but if reasonably justified, the Courts may approve an extension) after which there are two possible routes – first, formulating a creditor arrangement with corporate recovery and second, should the recovery proceeding fail – turning it into a dissolution proceeding.

  5. How do creditors and other stakeholders rank on an insolvency of a debtor? Do any stakeholders enjoy particular priority (e.g. employees, pension liabilities)? Could the claims of any class of creditor be subordinated (e.g. equitable subordination)?

    The ranking of creditors and debt repayment specified by Israeli Law is as follows:

    1. Creditors with fixed proprietary rights – this group includes creditors holding a specific lien or mortgage on debtor assets (whether individual or corporate) or a warning notice with regard to real estate property. This group also includes some debt to government authorities, which are governed by the Tax Ordinance (Collection);
    2. Expenses of insolvency proceeding;
    3. Priority creditors – the Law specifies groups of creditors or payments to be repaid with higher priority over ordinary creditors, including:

      3.1. Debt with respect to wages, up to the maximum amount specified by Law.

      3.2. Amounts withheld from wages pursuant to the Income Tax Ordinance and yet to be paid to the Tax Assessor.

      3.3. Mandatory, tax and rent payments for the 12 months preceding the dissolution order.

    4. Creditors holding a floating pledges;
    5. Ordinary (non-secured) creditors – this category also includes the debtor's creditors by tort;
    6. Debt to shareholders, in their capacity as shareholders, is subordinated debt, repayable only after full payment of debt to all other creditors. Debt to shareholders other than in their capacity as shareholders, would have equal ranking with all other creditors of the company, except in exceptional cases where it may be determined that the shareholder abused the company's separate legal entity. Furthermore, pursuant to provisions of the Securities Law, 1968, a controlling shareholder of a public company who is a debenture holder, would not be entitled to repayment of the company's obligations there to prior to full repayment by the company of its obligations to other holders.

    Pursuant to the Insolvency Law, the repayment order remains essentially unchanged, except for some changes in definition of some creditor groups and in debt ranking on the creditor ranking. Furthermore, some other changes were made in order to promote creditor equality. Thus, the repayment rate was reduced for creditors secured by a floating pledge (so that they would be repaid up to 75% of the proceeds from realization of the floating pledged assets);

  6. Can a debtor’s pre-insolvency transactions be challenged? If so, by whom, when and on what grounds? What is the effect of a successful challenge and how are the rights of third parties impacted?

    Yes. The companies Ordinance stipulates that when all four conditions listed below have been fulfilled, any transaction conducted by the company prior to the insolvency proceeding to benefit one of its creditors would be void: (1) The company is in dissolution; (2) When the company conducted such transaction or action, it was unable to repay its debts when due; (3) Such transaction or action were made in order to give priority to a particular creditor, or under duress or unlawful solicitation; (4) Such transaction or action took place within three months prior to filing the motion for dissolution;

    Regarding individual insolvency proceedings, in addition to the cancellation of transactions taken soon prior to the issue of a Receivership Order in order to give priority to a particular creditor, other provisions determine what transactions would be considered as deceitful sale. Those provisions distinguish between two periods: first, transfers made within two years prior to the initiation of insolvency proceeding – which would be canceled without requiring proving that the debtor was insolvent when such action was taken. Second, transactions made two to ten years prior to the initiation of insolvency proceeding – which may be canceled should the debtor be proven to be insolvent at the time of such transfer. These provisions would only apply to transactions made without equivalent consideration and other than in good faith.

    The new Insolvency Law created uniformity regarding the provisions that applies in both individuals and corporates insolvency proceedings in that matter.

    The first significant change in the new Insolvency Law is the cancelation of any requirement for an intention to prioritize certain creditor in order to cancel such a transaction. Therefore, the conditions for challenging pre-insolvency transactions are merely factual and consequential – (1) Debtor insolvency when making the transaction; (2) The transfer was made within three months prior to the initiation of proceeding (or within one year prior to that date in case the other side to the transaction is a "relative" of the debtor); (3) The transaction would result that creditor is being paid a larger share of his debt compared to the share payable to them in insolvency proceedings.

    The Insolvency Law also provides some defenses which, if substantiated, could prevent the cancelation of such transaction: (1) The transaction was made in the normal course of business; (2) Proper consideration was paid (other than debt repayment); (3) For an individual debtor – debt lower than NIS 5,000.

    Regarding to transfer of debtor's assets with no valuable consideration, the new law determine that the Court may cancel such a transaction, if taken within two years prior to the motion for an order to initiate proceedings (or within 4 years if the transferee is a relative of the debtor) and if debtor was insolvent at that time, or if taking such action caused the debtor to become insolvent. With regard to transfer of assets designed to conceal them, the law stipulates that the Court may have such transaction canceled even if the debtor was not insolvent at the time, provided that the action was taken within seven years prior to filing the motion for order to initiate proceedings.

    With regard to all of the aforementioned actions, cancellation of the action would not detract from the rights of any third party who acquired rights in the asset in good faith and for payment of proper consideration.

  7. What form of stay or moratorium applies in insolvency proceedings against the continuation of legal proceedings or the enforcement of creditors’ claims? Does that stay or moratorium have extraterritorial effect? In what circumstances may creditors benefit from any exceptions to such stay or moratorium?

    As from the issue date of a Court order with regard to insolvency proceedings (bankruptcy, dissolution or stay of proceedings in recovery proceeding), all pending proceedings against the debtor are suspended and new proceedings cannot be initiated, other than with Court approval. Any proceedings initiated after said date without Court approval are invalid. As from said date, all past debts of the debtor shall be claimed in a debt claim proceedings, decided by the Officer who has a quasi-judicial authority on this matter.

    The stay of proceedings does not apply to criminal proceedings against the debtor, and in most cases the Court approves continuation of tort claims brought against the debtor (which according to current law, cannot be filed within an insolvency proceedings.)

    The Insolvency Law stipulates that once an order to initiate proceedings is issued, a stay of proceedings would automatically apply, except for criminal and administrative proceedings. A stay of proceedings would also be granted with regard to tort claim, which under the Insolvency Law may be brought in conjunction with insolvency proceedings.

    Furthermore, the new Insolvency Law governs, for the first time, how international insolvency proceedings are to be conducted.

    The Insolvency Law distinguishes between a "primary foreign proceeding" – one which takes place in a foreign country where the debtor's center of life is located, and a "secondary foreign proceeding" – one which takes place in a place other than where the debtor's center of life is located, but where the debtor conducts regular economic activity which is not temporary, provided that they employ staff in that country.

    Should the Court recognize a primary foreign proceeding, this would result in suspension of repayment of the debtor's past debt and a stay of proceedings against the debtor, as well as suspension of any transfer of rights or pledging any asset of the debtor.

  8. What restructuring and rescue procedures are available in the jurisdiction, what are the entry requirements and how is a restructuring plan approved and implemented? Does management continue to operate the business and / or is the debtor subject to supervision? What roles do the court and other stakeholders play?

    In Israeli Law, there are proceedings for restructuring and rehabilitation with regard to individual and corporate debtors.

    Regarding corporate debtors, subject to the Companies Law, the first stage of the recovery process is filing a motion for a stay of all proceedings against the corporation. At this stage, a preliminary rehabilitation program is typically filed with the Court. Should the Court be convinced of the reasonable likelihood of rehabilitation of the corporation, a stay of proceedings would be ordered and an Officer would be appointed, entrusted with operation and recovery of the corporation, and formulating the creditor restructuring agreement.

    Once the stay of proceedings is ordered, the Court-appointed Officer shall take the necessary steps to stop the company's economic deterioration and shall act to put in place a recovery program for the company. The proposed recovery program and creditor restructuring agreement may be based on consideration from sale of company shares, investment by shareholders or third parties, or liquidation of assets.

    Later on, meetings of company creditors would be convened (with each creditor class separately convened) in order to approve the restructuring agreement. The creditor restructuring agreement is subject to approval by a majority of creditors voting on the acceptance of such agreement, who hold at least 75% of the value of debt claims filed to the Officer. Furthermore, approval of the creditor restructuring agreement is subject to Court approval, but the Court would only intervene in the creditors' judgment in very exceptional cases.

    With regard to insolvency proceedings of individuals, as noted above, in recent years the Official Receiver has reformed such proceedings, with the primary goal being debtor recovery. In this regard, and concurrently with declaring the debtor bankrupt, a repayment plan is assigned to the debtor who takes into consideration their incomes, age and debt repayment capacity, their assets and total debt. Once the repayment plan has been approved by the Court and completed – the debtor may start on a new road, exempt from their debt. Concurrently, existing Law allows the debtor to initiate a restructuring proceeding with their creditors, without being declared bankrupt. The Court may approve the debtor's proposed restructuring plan, should the Court be satisfied that it is reasonable to assume that at least 30% of all unsecured debt would be repaid pursuant to such plan.

    The Insolvency Law includes similar provisions for approval of a creditor restructuring agreement for corporate recovery, and also governs the provisions applicable to restructuring agreements reached other than in conjunction with an order to initiate proceedings – both for individuals and for corporations.

  9. Can a debtor in restructuring proceedings obtain new financing and are any special priorities afforded to such financing (if available)?

    Yes. Under certain circumstances, the Court would allow the Officer to obtain new credit for the insolvent corporation to finance continued operations during the stay of proceedings, where amounts required to repay such new credit would be deemed expenses associated with the stay of proceedings, i.e. to be repaid prior to debt repayment to creditors. The Court may even allow the Officer to create a new lien on an asset not pledged in favor of another creditor, in order to obtain such credit required for operation of the company.

    The new Insolvency Law includes similar provisions with regard to obtaining new credit.
    Regarding individual debtor, the existing law and the Insolvency Law both prohibit any new credit.

  10. Can a restructuring proceeding release claims against non-debtor parties (e.g. guarantees granted by parent entities, claims against directors of the debtor), and, if so, in what circumstances?

    It is common that a release from claims will be granted to the controlling shareholder and to officers of the company as part of a creditor restructuring agreements. Such release is typically granted against a financial contribution by said parties to the restructuring fund. Case law indicates that in general, granting such a release is a matter of the creditors' discretion and the Court does not typically intervene in such matter.

  11. Is it common for creditor committees to be formed in restructuring proceedings and what powers or responsibilities to they have? Are they permitted to retain advisers and, if so, how are they funded?

    Current legislation allows creditors to appoint an Audit Committee to supervise the management of assets of the debtor. Appointment of Audit Committees is not common and in fact rarely takes place.

    Pursuant to provisions of the Insolvency Law, the Court may appoint a creditor committee to represent the unsecured creditors. The creditor committee may present its position to the Trustee on any matter, and some matters the Trustee may only resolve after receiving the position of the creditor committee (including: pledging an asset, obtaining new credit, settlement with regard to debt amount and manner of repayment which materially impacts the total assets and debt repayment to creditors of a specific type). Expenses associated with management of the creditor committee are paid out of the restructuring fund and are classified as restructuring expenses.

  12. How are existing contracts treated in restructuring and insolvency processes? Are the parties obliged to continue to perform their obligations? Will termination, retention of title and set-off provisions in these contracts remain enforceable? Is there any ability for either party to disclaim the contract?

    Current legislation stipulates that in recovery proceedings, an existing contract shall not be terminated (nor be terminated by the other party) for cause of insolvency. An Officer may decide to continue or terminate an existing contract, as required for recovery of the company. Termination of an existing contract, or adoption of an existing contract, which the other party is entitled to terminate are subject to Court approval. In cases where the other party is entitled to terminate an existing contract due to breach thereof by the company, the Court shall not approve the adoption of such contract, unless it is proven that the company would fulfill its obligations pursuant to the contract as from the adoption date. The Court may also instruct a vital supplier of the corporation to continue supplying the vital goods and/or services to the company under a stay of proceedings, if such goods or services are required for continued operation of the company.

    In liquidation proceedings, a termination provision that was agreed upon two solvent parties will generally be recognized. However, if the contract stipulates that the mere issue of a liquidation order constitutes material breach of the contract, which confers on the other party the right to receive consolidated damages, it may be determined that such provision bypasses the cogent creditor ranking and constitutes prohibited creditor preference, and hence must be canceled.

    In addition, the Officers in corporate insolvency proceedings have the authority to relinquish an onerous asset. The statutory definition of "onerous asset" includes non-profitable contracts. Relinquish an onerous asset is subject to Court approval, which may contingent such relinquishing on ensuring proper compensation for the damaged party.

    Pursuant to the provisions of the Insolvency Law, the Officer may also continue existing contracts during operation of the corporation (even if the other party to such contract has a contractual right to terminate the engagement), and the Officer may, subject to Court approval, terminate an existing contract – even if there is no cause for doing so. Note that the Officer may not file a motion for continuing a contract that is a labor contract, contract for provision of personal service or contract for extending credit – and the Court shall not instruct such contract to be continued. Moreover, the Insolvency Law confers on the Officer the right to assign the rights and obligations of the corporation to an assignee, subject to Court approval, where such assignment is required for overall rehabilitation of the corporation, or for maximizing debt repayment to creditors, and provided that this would not harm the other party to the contract.

  13. What conditions apply to the sale of assets / the entire business in a restructuring or insolvency process? Does the purchaser acquire the assets “free and clear” of claims and liabilities? Can security be released without creditor consent? Is credit bidding permitted? Are pre-packaged sales possible?

    In dissolution proceedings, the sale of company assets is subject to Court approval and in recovery proceedings – it would also be subject to approval by the General Meetings of creditors.

    Ownership of the sold asset is transferred to the buyer clear of any lien, foreclosure or other right in the asset.

    The Officer may, subject to Court approval, sell an asset that is subject to a fixed lien clear of any lien, provided that they can prove to the Court that such sale is required for economic rehabilitation and that the consideration receivable would ensure proper protection of the secured creditor.

    There is no credit bidding under Israeli law.

    There is no prohibition on pre-packaged sales.

  14. What duties and liabilities should directors and officers be mindful of when managing a distressed debtor? What are the consequences of breach of duty? Is there any scope for other parties (e.g. director, partner, shareholder, lender) to incur liability for the debts of an insolvent debtor?

    As noted above, under current legislation, officers owe fiduciary duty and duty of care towards the corporation.

    Furthermore, in cases where the company's legal entity has been abused in order to defraud or discriminate a creditor, or in cases where the company was managed in a way which posed an unreasonable risk to its ability to repay its debt to creditors, the Court may order "piercing of the corporate veil" and may attribute the company's debt to shareholders.

    In addition, pursuant to provisions of the Companies Ordinance, anyone who knowingly took part in fraudulent management of the company, may be personally liable, without limitation, for the company's debts and may subject to imprisonment.

    The officers of a distress company may also be charged with payment of compensation for the damage incurred by the company as a result of an unfair use of the company's funds or assets.

    The Insolvency Law stipulates a similar arrangement regarding party who knowingly took part in fraudulent management of the company, but limits the liability thereof to the amount of damage incurred due to fraudulent management of the company.

    Furthermore, as set forth in section 3 above, the Insolvency Law stipulates a specific arrangement which imposes liability on a director or on the CEO, if they knew, or should have known, that the corporation is insolvent.

  15. Do restructuring or insolvency proceedings have the effect of releasing directors and other stakeholders from liability for previous actions and decisions?

    Current Israeli legislation does not release officers or directors from liability for any previous actions or decisions.

    The new Insolvency Law even expands the liability imposed on directors and officers with regard to management of a distress company and increases their exposure, as mentioned in section 14 above.

    As set forth in section 10 above, creditor restructuring agreement will sometimes include a provision regarding the release of the officers and shareholders from liability, subject to making a contribution to the creditor restructuring fund.

  16. Will a local court recognise concurrent foreign restructuring or insolvency proceedings over a local debtor? What is the process and test for achieving such recognition? Has the UNCITRAL Model Law on Cross Border Insolvency or the UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments been adopted or is it under consideration in your country?

    As noted above, prior to enactment of the new Insolvency Law, international insolvency proceedings were not properly regulated by Israeli Law and were subject to general laws with regard to recognizing foreign judgments.

    Therefore, a foreign insolvency proceeding was only recognized in Israel when it met the conditions stipulated in either of the two tracks specified in the Foreign Judgment Enforcement Act, 1958.

    1. "Direct recognition" track – whereby a judgment issued in a foreign country would only be recognized in Israel if it is subject to an explicit agreement with that foreign country, where Israel has undertaken in such agreement to recognize judgments of this type;
    2. The other track involves recognition of a judgment incidental to another matter discussed by the Court, where "it would be lawful and equitable to do so".

    The new Insolvency Law adopts the UNCITRAL model, allowing a foreign Officer to file a motion with the Court in Israel to recognize a foreign insolvency proceeding. With regard to recognition of foreign insolvency proceedings and applying them in Israel, see section 7 above.

  17. Can debtors incorporated elsewhere enter into restructuring or insolvency proceedings in the jurisdiction?

    Pursuant to provisions of Section 380 of the Companies Ordinance, which were also adopted in the Insolvency Law, Israeli insolvency laws would apply to companies incorporated outside Israel in two cases: (1) To any company with assets in Israel, whether or not registered in Israel. (2) Should the Minister of Justice order the provisions of the ordinance to be applicable to the foreign company facing dissolution.

    Note that according to the Court's approach, the term "asset" should be given a broad, purposeful interpretation whereby an asset is a thing owned, with economic value, which must have two major attributes: First, it should indicate sufficient connection with Israel, i.e. sufficient affinity of the company with the Israeli forum; and second, it should indicate the effectiveness of managing the proceeding at the Israeli forum, in the broad sense. That is, it should ensure that the dissolution order to be issued would be effective with regard to the company and its assets – in favor of the creditors.

  18. How are groups of companies treated on the restructuring or insolvency of one or more members of that group? Is there scope for cooperation between office holders?

    According to the Israeli legal system, each company in a group of companies treated as an independent legal entity. Accordingly, the Courts ensure that for each company in a corporate group, a separate insolvency proceeding would be managed.

    Therefore, officers of a company must only act in the best interest of the company which they serve, and each unit in a corporate concern must act in its own best interest as an independent profit-maximizing center. However, in extreme, unusual cases, Court rulings may order to pierce the corporate veil between companies and to attribute to one company the debt of another company in the concern.

    When the Court finds that a group of companies, controlled by the same shareholder, was managed with mixing of financial operations, the Court would tend to attribute all debt to all companies and to issue a joint liquidation order.

  19. Is it a debtor or creditor friendly jurisdiction?

    After a long period in which it appeared that the legal system prefers the interest of creditors over that of debtors, the new Insolvency Law has chosen to put the economic rehabilitation of the debtor as the first and foremost purpose of insolvency proceedings. The assumption is that the debtor recovery is in line with the best interest of creditors, due to the fact that this has overall benefit for the economy and promotes other social values.

  20. Do sociopolitical factors give additional influence to certain stakeholders in restructurings or insolvencies in the jurisdiction (e.g. pressure around employees or pensions)? What role does the state play in relation to a distressed business (e.g. availability of state support)?

    Both current statutory provisions and the Courts assign great importance to rights of employees of distressed companies. Under the current state of affairs, employees of a corporation in dissolution proceedings are entitled to payment from the State (National Insurance Institute) for unpaid wages, up to a limit specified by law. This provision does not apply to recovery proceedings.

    The new Insolvency Law includes a new interim provision regarding this matter, which stipulates that employees of a corporation under recovery proceeding would also be entitled to receive the payment. Since this amendment may also be abused, and involves significant budgetary cost, it was formed as an interim provision for three years, during which the implications thereof would be studied.

  21. What are the greatest barriers to efficient and effective restructurings and insolvencies in the jurisdiction? Are there any proposals for reform to counter any such barriers?

    Prior to legislation of the new Insolvency Law, most insolvency laws were based on a number various Ordinances dating back to the British Mandate period. The multiply legislative provisions created unnecessary distinction between laws applicable to individuals and to corporation, along with interpretive difficulties of the inter-relationships between the various statutory provisions. Some of the missing parts were completed by Court rulings and by reforms instituted by the Official Receiver, which were not anchored in legislation – but they, too, did not create comprehensive, unified regulation and have left some uncertainty with regard to some of the issues.

    The Insolvency Law is designed to rectify this state of affairs, institutes a comprehensive reform in this field, eliminating the existing ordinances and old arrangements. The Law has also created a structural change regarding the management of these proceedings by the authorities, in order to create faster, more efficient proceedings. The Law also strives to create proceedings with high certainty, and such certainty is valuable for modern commercial and economic life, with the intention of providing market stability.

    However, the Insolvency Law itself has also been extensively criticized by people in academia, judges, jurists and others involved in insolvency proceedings, who have called for the Law to be amended with regard to many, diverse issues. We believe that once the new Law will have become effective, in September 2019, with application of the principles and arrangements stipulated therein, it is unavoidable for the Law to be amended and revised, so as to allow it to be implemented in Israeli law and to form a stable legislative framework.