The Insolvency and Financial Rehabilitation Law came into effect in 2019. The new law added a new cause of action for imposing personal liability on a director or CEO of a corporation in insolvency in respect of damages caused to the corporation and to its creditors, insofar as such directors and officers failed to take action to minimize the scope of the corporation’s insolvency.
Acquiring an insolvent corporation’s operations during a legal proceeding (rehabilitation, recovery, or debt settlement) presents numerous business opportunities. However, the holding of an insolvency auction, an integral part of the sale, may threaten these opportunities. During a sale, the insolvent corporation’s trustee (or the administrators) needs to maximize proceeds from the auction to pay creditors. Therefore, the trustee must consider offers from additional bidders before accepting a proposal.
Liquidation is a legal process that ultimately dissolves the existence of a selected legal entity. During liquidation, the company empties itself of all its economic content, followed by the dissolution of its legal entity. The primary purpose is to sever the connection between the company and its shareholders once the company ceases to operate and exist.
The Israeli Companies Law outlines various paths for the liquidation of Israeli companies and also determines the process and schedule for each option.
The arrangements in Israel’s Insolvency and Economic Rehabilitation Law, enacted in 2018, include a series of special characteristics that must be taken into account when engaging with an Israeli corporation.
The relatively new law incorporates various rulings from previous years, and the legal practice deriving from it is still evolving. Thus, some uncertainty still exists regarding how the courts are likely to implement some of the arrangements prescribed in the law.
A company in financial distress has three main rehabilitation and debt arrangement channels. Each of these channels entails advantages and disadvantages. Applying to the court for relief during the rehabilitation of a company in insolvency offers numerous advantages. However, it also entails a major disadvantage that many people are unaware of. Namely, the application is a one-way street.
In recent years, Israel’s real estate and infrastructure market has experienced many cases of the corporate collapse of performance contractors. Just recently, a court ordered a temporary stay of proceedings against the construction company Tal Bar Construction and Supervision. The recent interest rate hike has also made headlines, including that it might hit performance contractors particularly hard. The collapse of a construction company affects not only the company and its creditors but also the project’s developer.
After a lawsuit filed by liquidators of a company that collapsed against the company’s former officers, directors, and independent auditors was dismissed in limine, a new Israeli Supreme Court ruling overturned that decision and allowed the liquidators to move forward with the lawsuit, alleging that lack of oversight was what led to the company’s collapse.
The coronavirus pandemic has wreaked extensive economic havoc on the activities of many businesses and households in Israel. According to data from the Commissioner of Insolvency Proceedings, 2020 brought a rise of about 41% in the number of applications to commence insolvency proceedings compared to 2019.
In light of these data, Ministry of Justice officials estimate a “flood” of requests to open insolvency proceedings in 2021.
COVID-19 has had an enormous impact on business relations around the world. This article specifically considers Israeli-founded companies with contracts governed by U.S. law, or that have business operations or assets within the U.S. While every company needs to take steps to conserve cash and cut costs and cash expenditures, the legal implications of such actions must be carefully planned to avoid pitfalls.
Insolvency proceedings are an integral part of business-commercial activities, in circumstances whereby a person or corporation might need to institute proceedings to rehabilitate its business activities or even to liquidate the company.
Insolvency reflects a factual situation in which a debtor (person or corporation) encounters economic and cash flow difficulties to the extent that the debtor is incapable of paying its debts to creditors on time.