Restructuring & Insolvency Comparative Guide

• Published date: 28 September 2020
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy, Shareholders
• Law Firm: Gissin & Co
• Author: Guy Gissin and Yael Hershkovitz

1 Legal framework

1.1 What domestic legislation governs restructuring and insolvency matters in your jurisdiction?

In September 2019 the new Israeli Insolvency and Economic Rehabilitation Law 2018 came into force. The new Insolvency Law effectively replaces and/or amends the entire Israeli insolvency regime, and in many cases adopts and regulates the Israeli case law that has evolved over the years.

As the new Insolvency Law just recently came into force, and as proceedings in which freezing orders were granted prior to this date remain subject to previous legislation, there is not yet sufficient case law on the interpretation and implementation of the new Insolvency Law, and reliance on previous legislation and rulings is still required.

The Pledge Law, 1967 is the general statute governing the creation and perfection of pledges of property and rights under Israeli law, which are also subject to the specific provisions of various other laws relating to the creation of collateral on specific assets or with respect to certain types of debtors.

1.2 What international / cross-border instruments relating to restructuring and insolvency have effect in your jurisdiction?

The new Insolvency Law sets forth specific provisions, based on the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency and international standards, for the recognition of foreign proceedings. Such provisions relate to the information and access rights of foreign creditors to Israeli proceedings. It is also specifically determined that the rights and standing of the foreign creditors are identical to those of Israeli creditors.

Protocols between foreign courts are not customary. However, in the recent case of Urbancorp Inc - a Canadian company which raised funds in Israel and subsequently collapsed - a protocol was signed between the Canadian court officers appointed to manage the Canadian subsidiaries to Advocate Gissin, as the Israeli court officer and the foreign representative of the foreign company, and the Israeli proceedings were recognised as main proceedings. The protocol was approved by the Israeli and Canadian courts.

1.3 Do any special regimes apply in specific sectors?

The Israeli restructuring and insolvency regimes and the new Insolvency Law do not include special regimes for particular sectors.

Under the Pledge Law, self-foreclosure of collateral is permitted only in very limited circumstances by Israeli banks or financial institutions, and only with respect to certain tangible assets and traded securities deposited with such institutions.

1.4 Is the restructuring and insolvency regime in your jurisdiction perceived to be more creditor friendly or debtor friendly?

The Israeli restructuring and insolvency regime is generally a creditor-friendly regime.

Secured creditors can foreclose in liquidation and also, if no proper protection is granted to their interest, in restructuring proceedings.

Unsecured creditors' approval in a special majority is required for any restructuring plan (as well as approval of the secured creditors, which are considered a separate class).

1.5 How well established is the legal regime and infrastructure relevant to restructuring and insolvency in your jurisdiction (e.g. extent of recent legislative changes, availability of specialist judges / courts / advisers)?

The Israeli market has been evolving since a wave of insolvencies in 2008 and the amendment of the laws relating to arrangements in 2013, which introduced an obligation to appoint a court expert with respect to traded bonds, among other things. In practice, a few local valuation experts are used in most arrangements.

The new Insolvency Law effectively replaces the provisions of the various laws relating to reorganisation and insolvencies, and covers issues such as:

• commencement of liquidation proceedings;
• appointment of trustees;
• stay of proceedings;
• receivership of assets;
• debt-claim filing and approval;
• creditors' meetings;
• submission and approval of arrangement proposal; and
• foreclosure of collateral.

The new Insolvency Law also provides for recovery arrangements: a court-run settlement between a company and its creditors and shareholders, similar in essence to US Chapter 11 proceedings, which allows for the continuation of the company's operations, including the ability:

• to raise new debt secured by existing pledged assets or to use such assets in such other manner as required for the company's operations; and
• to impose obligations on certain essential suppliers and third parties to continue providing services or to abstain from cancelling contracts due to the insolvency, even if they are contractually entitled to do so.

International/cross-border instruments have begun to be used only in recent years, mainly due to a wave of foreign companies issuing bonds in the Israeli market (primarily companies incorporated in the British Virgin Islands with assets in North America).

2 Security

2.1 What principal forms of security interest are taken over assets in your jurisdiction?

As set forth in question 1.1, the Pledge Law is the general statute governing the creation and perfection of pledge of property and rights, subject to the specific provisions of various other laws.

The provisions relating to the creation of collateral with respect to assets of companies are regulated under the Companies Ordinance [New Version], 1984, which allows for the creation of a floating charge. A floating charge can be created and registered only with respect to the assets of companies, and thus not with respect to the assets of individuals or partnerships.

A mortgage can be registered only on immovable property that has been registered in the Land Register, in accordance with the Land Law, 1969. Collateral with respect to rights in immovable property that is not registered in the Land Register is governed by the Pledge Law.

Several other laws set forth specific instructions with respect to specific properties, such as the Patent Law, 1967, in relation to the creation and perfection of a pledge of patents; and certain provisions with respect to the pledge of vehicles.

2.2 How can those security interests be enforced (and what factors could complicate or prevent this process)?

Self-foreclosure of collateral is permitted under Israeli law only in very limited circumstances by Israeli banks or financial institutions, and only with respect to certain tangible assets and traded securities deposited with such institutions.

Any other foreclosure of collateral will be reported and supervised by the court, execution office or court officer, depending on the type of proceedings.

Generally, where the value of the collateral is lower than the secured debt, the court will abstain from involvement and the creditor may foreclose the pledged asset. Where the value of the collateral exceeds the debt, the foreclosure process will be performed by a court officer in order to protect the residual value of the collateral - for example, where the creditor holds a 'fire sale' that may result in lower values.

In liquidation proceedings, a creditor is generally entitled to foreclose its pledge independently from the insolvency proceedings, subject to the provision of appropriate notice to the debtor trustee or the liquidation court, and subject to certain rights of redemption of the collateral granted to the debtor/trustee.

In recovery and reorganisation proceedings, a stay order prevents a secured creditor from foreclosing on its pledge; instead, it must apply to the court in order to seek approval to foreclose on an asset charged in its favour. The court shall permit foreclosure if:

• it is satisfied that the creditor's rights in the asset have not...