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 been properly protected; or
  • foreclosure of the charged asset is unlikely to have an adverse effect on the possibility of recovery of the company.

Furthermore, a court may, under certain circumstances, allow the trustee to create additional pledges in any rank of seniority, including on pledged assets, or even to sell those pledged assets without the secured creditor's consent, all provided that those rights are properly secured and that such action is essential for the arrangement proceedings.

The new Insolvency Law limits the consideration from foreclosure of the floating charge to a 75% limit of recovery in favour of the secured creditors.

In addition, with respect to receivership, a receiver may be appointed in accordance with the Collection System Law, 1967, under the supervision of the Collection System Authority, or by an insolvency court. A receiver may be required to deposit a guarantee to secure performance of its duties.

3 Restructuring

3.1 Are informal workouts available in your jurisdiction? If so, what forms do they typically take, and what are the benefits and drawbacks as compared to formal restructuring proceedings?

An informal process is usually a situation in which there are few creditors or shareholders, and not a full-scale process that requires the consent of multiple creditors of different classes. In the case of material restructuring of traded bonds, court proceedings are mandatory.

3.2 What formal restructuring proceedings are available in your jurisdiction, and what are the benefits and drawbacks of each?

Under the new Insolvency Law, a formal restructuring process includes an automatic stay (‘freezing') order and/or the appointment of a court officer.

A stay order itself will also not prevent the company's use or sale of its assets, but only certain proceedings taken with respect to the company or its assets.

A court officer appointed to a company to which a stay order has been issued may use or sell the company's assets, including any asset pledged or under a reservation of title, unless the court is convinced that such use or sale is not required for the recovery of the company, or that the secured creditor or holder of reservation of title was not assured proper protection.

However, there are other available proceedings which do not have such a severe effect on the company's operations.

The newly introduced ‘protected negotiation' chapter includes built-in creditor protections, such as the appointment of a creditors' representative to conduct negotiations and to attend board of directors' meetings, who is entitled to information regarding the corporation other than with respect to the protected negotiation.

The creditors' representative shall report to the creditors with respect to any action of the corporation which is not for the benefit of the corporation or which may cause damage to the creditors, with its recommendation of the possible actions to be taken by the creditors.

Furthermore, a court may deny any of the protections prescribed under the law at the request of a creditor if:

  • there are real concerns that the corporation is trying to:
    • deceive its creditors;
    • transfer an asset illegally; or
    • make improper use of the protections granted; or
  • there is a real concern of damage to the value of an asset charged in favour of a creditor.

Under the new Insolvency Law, a public corporation may commence a process of protected negotiation as long as it is not breaching its payment obligations and can fulfil those obligations for an additional nine months. This process does not require a court process and provides protection from immediate repayment and freezing orders for six months.

This is not a mandatory pre-statutory process, but a means to encourage any such corporation to commence negotiations at earlier stages in order to increase its chances of recovery.

If a material debt arrangement plan is being negotiated between traded bond holders and the issuing company, the bond trustee (or the company in the absence of a trustee) must seek the appointment of a court expert.

The court expert will provide an opinion with respect to the proposed arrangement, the distribution between the different creditors, the value of the proposed arrangement as opposed to liquidation and so on.

The plan of arrangement must be approved in court in creditors' meetings.

A plan of arrangement between a company and its stakeholders may be approved without opening insolvency proceedings and be subject only to approval by its stakeholders' meetings. The court may appoint a court officer for the implementation of the arrangement.

3.3 How, by whom and on what grounds are formal restructuring proceedings initiated? What are the main preconditions for success?

The new Insolvency Law imposes specific liability on directors and officers who knew or should have known that the company was insolvent and did not take reasonable measures to reduce its scope. A presumption of taking reasonable measures exists where those directors and officers consulted insolvency experts, negotiated a debt arrangement with the company's creditors or commenced insolvency proceedings.

Under the existing legislation, while it was clear that creditors could commence certain insolvency proceedings, such as receivership and liquidation, it was not clear whether creditors might initiate a recovery plan within the framework of reorganisation proceedings.

In Liquidation Case 36681-04-13 IDB Development Company Ltd v Hermetic Trust (1975) Ltd Series 7 and 9 Bond Trustee, the Israeli court specifically ruled that creditors may initiate and approve a recovery plan, notwithstanding the lack of consent of the company within the framework of recovery and reorganisation proceedings.

The new Insolvency Law adopted this principle and specifically set forth that a creditor may initiate a recovery plan as long as the company is insolvent, as defined under the new Insolvency Law.

However, the creditor of a debt which is not yet due may initiate insolvency proceedings if the company is unable to repay the debt, if the debt is due within six months of the motion to initiate proceedings. The creditor may also commence insolvency proceedings if fraudulent transfers or convenience have taken place.

The new Insolvency Law adopts the two tests of insolvency recognised under the case law (which did not explicitly choose one over the other) and sets forth some factual presumptions of insolvency:

  • the balance-sheet test – where the total obligations of a company exceed the value of its assets; and
  • the cash-flow test – this examines the company's ability to repay its obligations as they become due and payable.

3.4 What are the effects of the commencement of formal restructuring proceedings, both for the debtor and for creditors?

See question 3.2.

3.5 Does a moratorium or stay apply and, if so, what is its scope? Are there exceptions?

See question 3.2.

3.6 What process do restructuring proceedings typically follow (including likely length of process and key milestones)?

Once a company is known to be in financial difficulties, it customarily executes a ‘standstill' commitment, under which it undertakes:

  • not to dispose of its assets;
  • not to take any action that is not in the ordinary course of business; and
  • to provide information throughout the negotiations.

The standstill will enable the parties to discuss and conclude an arrangement to presented to the court for approval.

3.7 What are the roles, rights and responsibilities of the following stakeholders in restructuring proceedings? (a) Debtor, (b) Directors of the debtor, (c) Shareholders of the debtor, (d) Secured creditors, (e) Unsecured creditors, (f) Employees, (g) Pension creditors, (h) Insolvency officeholder (if any), (i) Court.

(a) Debtor

The debtor must take reasonable measures to reduce the scope of insolvency as set forth in question 3.3

(b) Directors of the debtor

The debtor's management must take reasonable measures to reduce the scope of insolvency as set forth in question 3.3.

(c) Shareholders of the debtor

Under the new Insolvency Law, as well as Israeli case law, the shareholders have very little effect on the approval of a creditor's arrangement, and only to the extent they demonstrated that residual value will remain after repayment of all debts. The new Insolvency Law specifically determines that the shareholders' meeting shall only be asked to approve the arrangement if the company's assets allow for the full repayment of all past debts.

(d) Secured creditors

See question 2.2.

(e) Unsecured creditors

See question 4.8.

(f) Employees

See question 4.8.

(g) Pension creditors

See question 4.8.

(h) Insolvency officeholder (if any)

See question 3.2.

(i) Court

The court will supervise the entire restructuring process (if conducted in court) and will authorise any act of the court officer.

3.8 Can restructuring proceedings be used to "cram down" and bind dissentient creditors to a transaction supported by other creditors? Are creditors separated into classes for the purposes of voting in the proceedings? What are the relevant voting thresholds? Is "cross-class cramdown" available?

The creditors' approval should be obtained by each class of creditors (or shareholders, if applicable) which has an interest distinct from those of other creditors. The required majority is the majority of the participants holding at least 75% of the value represented in the vote. The value distribution shall be performed in accordance with the provisions of the plan.

Under the new Insolvency Law, the court can approve an arrangement even without the required approval of each class of creditors, provided that it is approved by more than 50% of the entire debt. If the arrangement is not approved, a liquidation will occur and the recovery for the dissenting class of creditors will be lower than that under the arrangement.

Where a secured creditor dissents to the arrangement, there is also a requirement to pay or secure payment of the value of the secure debt (and, if charged by a floating charge, after deducting 25% of the value of the pledged asset).

Another condition for cramdown is lack of consideration for shareholders without full repayment of past debts.

The court can consider additional factors such as the interests of company employees or public interests.

Although a similar provision exists in the Companies Law, it is not widely used.

3.9 Can restructuring proceedings be used to compromise secured debt?

A court officer appointed to a company to which a stay order has been issued may use or sell the company's assets, including any asset pledged or under a reservation of title, unless the court is convinced that:

  • such use or sale is not required for the company's recovery; or
  • the secured creditor or holder of reservation of title was not assured proper protection.

3.10 Can contracts / leases be disclaimed or otherwise addressed through restructuring proceedings?

An existing contract may be continued (notwithstanding the existence of a cause for termination) or dismissed by the appointed court officer, to the extent that this is required for the company's recovery with the approval of the court. The expenses under an existing contract adopted by the company shall have the status of recovery expenses, and any damage to the counterparty shall be deemed a debt recoverable in the arrangement proceedings.

3.11 Can liabilities of third parties (e.g. guarantors) be released through restructuring proceedings?

Where duly conducted and published in accordance with the law, arrangement proceedings will also bind ‘unknown' or contingent creditors. However, pursuant to the new Insolvency Law, this shall not exempt the company from penalties, debts occurred through criminal offences and alimony payments approved by court.

Contingent claims will generally be vindicated through a debt claim, which will be conditioned on the results of the relevant proceeding. In certain cases, a reserve shall be set aside; but in the case of preliminary proceedings, very large claims and/or claims where additional dividends are expected, the court may provide that a reserve need not be set aside for this purpose, provided that the conditional claim will receive priority in future distribution.

3.12 Is any protection and/or priority afforded to the providers of new money in the context of restructuring proceedings (i.e. is "DIP financing" available)?

The court may allow the court officer to lend new money required for the operation of the company.

The court may also allow for charges to be established over the company's assets that may be ranked inferior, equal or even in priority to existing charges, in order to enable the receipt of new credit which is essential for the company's operation.

The creation of such charges is subject to the court's approval and to ‘proper protection' of the existing secured creditors. This ‘proper protection' means that the value of the debt secured by the charge must be preserved. The value of debt relates to the sum that would have been repaid from the sale of the charged asset independently from the recovery process – that is, the reference point is not the original value, but the expected current realisation value.

The repayment of any such new credit shall be treated as recovery expenses and therefore as a priority claim, unless otherwise determined by the court.

Despite the favourable terms allowing the court officer to obtain this credit, we are not aware to any actual substantial use of this provision in practice.

3.13 How do restructuring proceedings conclude?

The restructuring proceedings will conclude with the approval and implementation of a reorganisation plan, which will include:

  • the introduction of new management and controlling shareholders (or reinstatement of the former ones); or
  • foreclosure of the assets and management thereof in the interim period by the court-appointed officer.

4 Insolvency

4.1 What types of insolvency proceeding are available in your jurisdiction, and what are the benefits and drawbacks of each?

See question 3.2.

4.2 How, by whom and on what grounds are insolvency proceedings initiated? Can the instigating party (or any other parties) select the identity of the relevant insolvency officeholder?

See question 3.3.

The official receiver will recommend three to five candidates to serve as court officers from the list it maintains. The company and/or creditors may suggest additional candidates.

In certain cases, the official receiver itself may be appointed; and in other cases an officer of the company, together with a candidate from the list maintained by the official receiver.

4.3 What are the effects of the commencement of insolvency proceedings, both for the debtor and for creditors?

See questions 3.2, 3.9 and 3.12.

4.4 Does a moratorium or stay apply and, if so, what is its scope? Are there exceptions?

See question 3.2.

4.5 What process do insolvency proceedings typically follow (including likely length of process and key milestones)?

See question 3.6.

4.6 What are the respective roles, rights and responsibilities of the following stakeholders during the insolvency proceedings? (a) Debtor, (b) Directors of the debtor, (c) Shareholders of the debtor, (d) Secured creditors, (e) Unsecured creditors, (f) Administrator, (g) Employees, (h) Pension creditors, (i) Insolvency officeholder, (j) Court.

(a) Debtor

See question 3.7.

(b) Directors of the debtor

See question 3.3.

(c) Shareholders of the debtor

See question 3.7.

(d) Secured creditors

See question 3.7.

(e) Unsecured creditors

See question 3.7.

(f) Administrator

See question 3.7.

(g) Employees

See question 3.7.

(h) Pension creditors

See question 1.3.

(i) Insolvency officeholder

See question 3.7.

(j) Court

See question 3.7.

4.7 What is the process for filing claims in the insolvency proceedings?

A creditor's claim is recognised through a debt claim process conducted by an appointed officer of the court or through a plan of arrangement setting forth the rights of the different creditors.

Contingent claims will generally be vindicated through a debt claim, which will be conditioned on the results of the relevant proceeding. In certain cases, a reserve shall be set aside; but in the case of preliminary proceedings, very large claims and/or claims where additional dividends are expected, the court may provide that a reserve need not be set aside for this purpose, provided that the conditional claim will receive priority in future distribution.

4.8 How are claims ranked in the insolvency proceedings? Do any claims have "super priority" and is there scope for subordination by operation of law (e.g. equitable subordination)?

The priority order between the stakeholders is generally as follows:

  • First-ranking tax charges: The tax authorities may have first priority charges, mainly with respect to real estate, which must be repaid prior to distribution of the proceeds of a sale.
  • Secured creditors and owners of title retention assets: A secured creditor may be able to foreclose its collateral independently from the insolvency proceedings. The same provisions apply in recovery and rearrangement proceedings to owners of assets under retention of title agreements. However, a floating charge will be subject to payment to priority creditors, as set forth above, and shall only grant priority with respect to 75% of its value.
  • Priority creditors: Certain debts and creditors will have priority, as follows:
    • insolvency proceedings fees and expenses;
    • certain amounts of unpaid wages to employees or loans granted to the company for the payment of wages up to certain amounts;
    • amounts deducted from wages and not yet paid to the income tax assessor;
    • certain alimony payments; and
    • certain taxes due prior to the commencement of insolvency proceedings to the state.
  • Unsecured creditors: Generally, all other creditors shall rank equally.

4.9 What is the effect of insolvency proceedings on existing contracts? Is the counterparty free to terminate? Can they be disclaimed?

See question 3.10.

4.10 Can transactions entered into by the debtor prior to be insolvency be challenged and set aside? What are the relevant grounds / look-back periods / defences?

Any transaction that takes place in the three months prior to commencement of the insolvency proceedings (or one year, if entered into with a relative) can be challenged and revoked if found that it was intended to create a preference for any creditor, or was due to illegal constraint or pressure. Actions shall not be revoked if proper consideration was received or if the transaction was effected and the debt was created in the ordinary course of business.

Additionally, the conveyance of property may be invalid if performed in the two years preceding the insolvency proceedings (or four years if conveyed to a relative), unless the conveyance beneficiary can prove that the person was solvent at such time without the property conveyed or that proper consideration was received.

However, this will not affect the rights of a person who purchased an asset in good faith and at an appropriate value from a creditor.

Ongoing actions may be set aside even if begun seven years prior to the insolvency proceedings if made in order to transfer an asset illegally.

4.11 How do the insolvency proceedings conclude? Can any liabilities survive the insolvency proceedings?

The restructuring proceedings will conclude on the approval and implementation of a reorganisation plan, which will include:

  • the introduction of new management and controlling shareholders (or reinstatement of the former ones); or
  • foreclosure of the assets and management thereof in the interim period by the court-appointed officer.

The nature of the rights purchased will be settled in the plan of arrangement and there is no automatic exemption of claims or similar. However, in practice, the purchaser will require a court order protecting against claims, including contingent claims. Such an order may be granted if the company is in clear insolvency and its recognised creditors may be adversely affected by denying that order.

However, an exemption must be clearly presented, quantified in value by the court expert or officer.

5 Cross-border / Groups

5.1 Can foreign debtors avail of the restructuring and insolvency regime in your jurisdiction?

Foreign debtors issuing securities to the public in Israel are subject by law to the Israeli insolvency regime.

Other foreign creditors will generally be treated in accordance with the new Insolvency Law, the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency and international standards for the recognition of foreign proceedings.

5.2 Under what conditions will the courts in your jurisdiction recognise and/or give effect to foreign insolvency or restructuring proceedings or otherwise grant assistance in the context of such proceedings?

The Israeli court will recognise a foreign main proceeding or a secondary foreign proceeding if:

  • the foreign proceeding is an insolvency proceeding supervised by a foreign-authorised authority; and
  • the foreign office holder files an application together with evidence for the opening or conduct of the insolvency proceeding in the foreign jurisdiction.

5.3 To what extent will the courts cooperate with their counterparts in other jurisdictions in the case of cross-border insolvency or restructuring proceedings?

The Israeli court will cooperate and will abstain from approving any action or granting any remedy in contravention of the authority of the foreign court.

5.4 How are corporate groups treated in the context of restructuring and insolvency proceedings? If there is no concept of a group proceeding (or consolidation), is there any regime through which insolvency officeholders must / may cooperate?

The corporate group concept is not recognised and each company must operate in favour of its own stakeholders. Therefore, an arrangement with respect to a group of companies shall be subject to the separate verification of rights with respect to each company and its creditors.

Court officers are expected to assist each other in good faith.

5.5 How is the debtor's centre of main interests determined in your jurisdiction?

The new Insolvency Law adopts the ‘centre of main interests' (COMI) test and the presumption of COMI as the place of registration of a company.

5.6 How are foreign creditors treated in restructuring and insolvency proceedings in your jurisdiction?

The new Insolvency Law sets forth specific provisions, based on the UNCITRAL Model Law and international standards, for 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 will be identical to those of Israeli creditors.

6 Liability risk

6.1 What duties do the directors of the debtor have when the company is in the "zone of insolvency" (or actually insolvent)? Do they have an obligation to commence insolvency proceedings at any particular time?

See question 3.3.

6.2 Are there any circumstances in which the directors could incur personal liability in the context of a debtor's insolvency?

The new Insolvency Law imposes specific liability on directors and officers who knew or should have known that the company was insolvent, but failed to take reasonable measures to reduce its scope. In such cases those directors and officers will be personally liable for the company's debts.

6.3 Is there any scope for any other party to incur liability in the context of a debtor's insolvency (e.g. lender or shareholder liability)?

The court may ‘pierce the corporate veil' and attribute the debts of a company to its shareholders if it is found that they used the company in order to deceive any person or discriminate against a creditor in a way which was harmful to the company's purpose, or caused unreasonable risk to its ability to repay its debt. An example of such behaviour is the use of unreasonable financial leveraging.

The court may determine that any officer or director of an insolvent company who was involved in fraudulent conduct shall be personally liable for any damages caused by such conduct, and may disqualify him or her from serving as an officer in any corporation for up to five years.

A shadow director is subject to all duties and potential liabilities of a regular director. The determination of the status of a shadow director is connected to its level of influence and a creditor can be considered a shadow director.

In the recent case of Urbancorp Inc, the functionary claimed that a Canadian lender was in fact acting as a shadow director and initiated a process of raising funds in Israel. The claim was settled out of court.

7 Other

7.1 Is it possible to effect a "pre-pack" sale of assets, and is it possible to sell the assets free and clear of security, in restructuring and insolvency proceedings in your jurisdiction?

Sales and similar transactions that have been pre-negotiated prior to the restructuring proceedings will be effected subject to the required approvals under the restructuring proceedings.

Where duly conducted and published in accordance with the law, arrangement proceedings will also bind ‘unknown' or contingent creditors, and will therefore allow for sale free and clear of security.

7.2 Is "credit bidding" permitted?

Creditors have no special rights for credit bidding or acting as a stalking horse, but may participate in any bidding process. There are no specific rules with respect to credit bids.

8 Trends and predictions

8.1 How would you describe the current restructuring and insolvency landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Over the last decade, the Israeli economy has been transformed. It was previously dominated by an economic elite comprised of a few families which controlled a significant part of the country's leading corporations through ‘pyramid' structures, allowing them to control a large group of subsidiaries through a relatively small investment at the top of the pyramid. These structures led to a great degree of leverage, leading to the collapse of many of those groups in an unprecedented wave of debt arrangements which was felt throughout the Israeli corporate bonds market, including the IDB, Delek, Africa Investment and Petrochemical debt arrangements. Alongside this natural loss of control of the pyramids, the Israeli legislature introduced limitations on their creation and an obligation to dismantle within a few years any such pyramid structure of more than two layers, under the framework of the Promotion of Competition and Decrease of Centralization Law, 2013. The law further included certain obligations to separate financial holdings from other major holdings and obliged Israeli institutions to take into account competition considerations when allocating public resources.

The restructuring market continues to evolve, influenced by the introduction of new legislation and rulings, as described in this Q&A. The market is also influenced by the development of the Israeli corporate bond market, as well as a trend of activism by institutional investors with respect to the restructuring of traded bonds. This trend is leading to increased involvement of bondholders in the affairs of companies that are experiencing financial difficulties.

9 Tips and traps

9.1 What are your top tips for a smooth restructuring and what potential sticking points would you highlight?

Successful restructuring is mainly conditioned on the ability to communicate with the different types of creditors and their respective counsel and representatives.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.