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Financing Boost for Business Recovery
Israel’s Insolvency Law Provides Lifeline for Debtors and Lenders Alike
In a move to support businesses in financial distress, Israel’s Insolvency Law has been amended to provide greater flexibility for debtors and lenders. The changes are set to benefit both parties by enabling the granting of financing to help struggling companies recover.
Restrictions on Security Release
Under the new regulations, the release of security interests in Israel is subject to certain restrictions:
- Statutory limitations on the use of guarantees or security by regulated entities
- Contractual restrictions on pledging assets
- Additional restrictions may apply for Israeli companies that have received government funding
Priority of Competing Security Interests
The priority of competing security interests in Israel is determined by the “first in time” principle:
- Creditors who have registered their security interests first will take precedence over subsequent creditors
- Contractual subordination provisions can be used to vary this priority
DIP Financing and Priming Liens
In cases where a debtor is seeking financing to fund its business and support a going-concern sale, the trustee has the discretion to negotiate terms for DIP financing with secured lenders:
- May involve agreeing on terms that require a sales process
- Not always guaranteed
Enforcement of Collateral by Secured Lenders
Secured lenders in Israel can enforce their collateral upon the occurrence of any trigger event agreed in the relevant security document:
- Outside insolvency proceedings, enforcement can be carried out through the Israeli courts or court execution office
- Often involves a public auction conducted by a receiver
In the context of insolvency proceedings, the court may determine whether to direct the company or partnership into rehabilitation or liquidation proceedings. If rehabilitation is ordered, the court has the right to impose a moratorium on proceedings against the company or partnership for up to nine months, which may restrict the enforcement of security.
A New Era for Business Recovery
The amended Insolvency Law in Israel provides a fresh opportunity for debtors and lenders to work together to achieve business recovery:
- Provides greater flexibility and guidance on the release of security interests
- Priority of competing security interests
- DIP financing
- Enforcement of collateral
By supporting struggling companies and facilitating economic rehabilitation, the law aims to promote business recovery in Israel.
In a statement, [Name], CEO of [Company], welcomed the changes: “These reforms will help to promote business recovery in Israel by providing greater clarity and flexibility for debtors and lenders. We believe that this will have a positive impact on the economy as a whole.”
The amendments to the Insolvency Law are set to take effect on [Date]. For more information, please contact [Name] at [Company].