: According to the European Restructuring and Insolvency Guide 2005/2006 prepared by PricewaterhouseCoopers, Israeli law recognizes three main ways of dealing with insolvent companies: (1) a voluntary arrangement between the debtor and its creditors; (2) liquidation; and (3) receivership. All three of the insolvency procedures constitute collective proceedings that are conducted under court supervision and guidance, with particular attention to the priorities established by law, including the principle of equality between creditors of any given class. In some cases, however, the boundaries blur between the three insolvency proceedings. The Israeli courts tend to view optimal debt repayment as the main objective of insolvency proceedings. Accordingly, the courts treat all three approaches as essentially designed to protect the interests of creditors, giving them priority over the interests of the debtor or any third parties such as employees, suppliers or customers. The lack of a comprehensive regulatory framework for the recovery of insolvent companies constitutes a major disadvantage, resulting in uncertainty for the various parties involved. In some cases, however, the absence of legislation turns out to be an advantage, as it allows the courts to apply their own judgment and structure arrangements tailored to the specific circumstances and to market conditions. However, there is no publicly available information regarding Israel's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.

General Overview

According to the European Restructuring and Insolvency Guide 2005/2006 prepared by PricewaterhouseCoopers, the Israeli legislation on insolvent companies is principally set out in the Companies Ordinance (New Version) 1983, the Bankruptcy Ordinance 1980, the Companies Law 1999, and certain regulations introduced on the basis of these laws. However, the vast majority of insolvency-related matters have been established by case law and court precedent. (PWC 2005)

Israeli law recognizes three main ways of dealing with insolvent companies: (1) a voluntary arrangement between the debtor and its creditors; (2) liquidation; and (3) receivership. According to established practice, a voluntary arrangement is designed to rescue the debtor company, while liquidation and receivership are intended to secure the best price from realization of company assets for the repayment of creditors. The law stipulates that in order to facilitate the conclusion of an arrangement between the debtor and its creditors, the court may stay proceedings against the debtor for a certain period of time and appoint a trustee to supervise the debtor's business. The trustee will act on the instruction of the court. The trustee is usually appointed on the nomination of the debtor. This often serves as a defence for the debtor against its creditors while pursuing a voluntary arrangement. Liquidation and receivership are usually initiated by the creditors. (PWC 2005)

In some cases, however, the boundaries blur between the three insolvency proceedings. The Israeli courts tend to view optimal debt repayment as the main objective of insolvency proceedings. Accordingly, the courts treat all three approaches as essentially designed to protect the interests of creditors, giving them priority over the interests of the debtor or any third parties such as employees, suppliers or customers. A stay of proceedings and a scheme of arrangement between an insolvent company and its creditors will therefore be allowed only if this course of action can reasonably be expected to favour the creditors. On the other hand, if the creditors would collect more from the company as a going concern, the courts will not hesitate to order that the company be operated as a going concern within the framework of liquidation or receivership proceedings. (PWC 2005)

All three of the insolvency procedures constitute collective proceedings that are conducted under court supervision and guidance, with particular attention to the priorities established by law, including the principle of equality between creditors of any given class. The lack of a comprehensive regulatory framework for the recovery of insolvent companies constitutes a major disadvantage, resulting in uncertainty for the various parties involved. In some cases, however, the absence of legislation turns out to be an advantage, as it allows the courts to apply their own judgment and structure arrangements tailored to the specific circumstances and to market conditions. (PWC 2005)

According to the World Bank, in Israel, the process of closing a business takes 4.0 years (compared to the regional average of 3.1 and OECD average of 1.4) and costs 23% of the estate value (compared to the regional average of 12.1 and OECD average of 7.1). The recovery rate, expressed in terms of how many cents on the dollar claimants recover from the insolvent firm, is 43.9 (compared to the regional average of 25.7 and OECD average of 74.0). (WB 2006)