Insolvency
Insolvency and Enforcement
Insolvency
Insolvency is a financial situation in which a debtor (an individual or a business) is unable to repay debts on time, or when the total amount of debts and liabilities exceeds the value of the debtor’s assets.
The Israeli Insolvency and Economic Rehabilitation Law, 2018, established a unified legal procedure (replacing bankruptcy) aimed at the:
- Economic rehabilitation of the debtor (discharge of debts after the process) and
- Repayment to creditors to the greatest extent possible.
Objectives of the procedure:
• Rehabilitation of the debtor,
• Granting a discharge from debts (upon completion of a proper process),
• Repayment of debts to creditors.
The purposes of insolvency proceedings are twofold:
The Israeli Insolvency and Economic Rehabilitation Law, 2018 sets out the substantive considerations the court must examine when deciding whether to grant insolvency proceedings. The court may reject a request if it was filed in bad faith, intended to abuse the process, or if the debtor is capable of repaying his debts.
Two main purposes underlie the court’s discretion:
1. Creditors’ interest - convening the debtor’s assets for repayment in an efficient, equitable, and swift manner.
2. Debtor’s interest - granting the debtor an opportunity to “start anew” after being discharged from debts.
Good faith is assessed according to objective standards derived from the purposes of insolvency. Public policy, a dynamic concept reflecting the social ethos of the legal system, plays a central role. A debtor who created debts in bad faith or harmed creditors should not benefit from the advantages of insolvency proceedings, which are intended, among other things, for economic and social rehabilitation.
Corporate Liquidation
Liquidation refers to insolvency in corporations. For individuals, an insolvency order is issued; for corporations, a liquidation order is granted.
Whereas an individual may begin a new chapter in life after insolvency, a corporation undergoing liquidation is dissolved and struck off the register.
A fundamental principle in insolvency and liquidation is the equitable distribution of assets among creditors of equal standing, while establishing a hierarchy of priority among different groups of creditors according to the nature of their claims. Within each group, equality prevails, prohibiting preference of one creditor over another.
Enforcement (Execution Office)
Our firm provides legal advice and representation in all proceedings before the Enforcement and Collection Authority, for both debtors and creditors.
An important procedure affecting debtors considering insolvency is the discharge track for a “restricted means debtor” within the Enforcement Office.
This track allows debtors declared “restricted means debtors” to apply for debt cancellation, including debts outside the Enforcement Office, subject to eligibility criteria. Certain debts are excluded from discharge, such as:
• Debts created by fraud.
• Child support obligations.
• Mortgage debts.
• Criminal or administrative fines.
• Unliquidated damages (e.g., tort claims for bodily injury).
Our firm provides legal services to individuals and corporations in insolvency, liquidation, stays of proceedings, debt claims, and all matters before the Enforcement and Collection Authority.
