Creditors Face Uncertainty in Israeli Insolvency Proceedings

TEL AVIV, ISRAEL - As creditors seek to recover their losses in Israeli insolvency proceedings, a recent report highlights the complexities and uncertainties surrounding the enforcement of collateral and security interests.

Complexity of Security Interests

According to industry experts, the costs of perfection are minimal, with charges and pledges typically registered at the relevant registry within two to five business days. However, this ease of registration belies the complex web of priorities and subordination that can arise in Israeli insolvency proceedings.

Priority and Subordination

Under Israeli law, a secured lender’s priority over competing security interests is determined by the “first in time” principle, with duly registered floating charges taking precedence over subsequent fixed-charge security interests. However, the Insolvency Law 2019 has introduced new rules governing the priority of competing security interests, including the subordination of floating charge holders to unsecured creditors.

Contractual Subordination Provisions

The report also highlights the importance of contractual subordination provisions in Israeli loan agreements, which can vary the priority of creditors and survive insolvency proceedings. This can have significant implications for secured lenders seeking to recover their losses in the event of insolvency.

DIP Financing and Alternative Funding

In addition, the report notes that the trustee may negotiate terms for DIP financing with secured lenders or seek alternative sources of funding, subject to court approval. However, the standards for adequate protection of existing secured lenders’ interests without their consent remain unclear.

Enforcement of Collateral

The enforcement of collateral by secured lenders is also governed by Israeli law, which permits enforcement through the courts or court execution office in non-insolvency proceedings. In insolvency proceedings, the court may direct the company into rehabilitation or liquidation, with a moratorium on proceedings restricting the enforcement of security interests for up to nine months.

Conclusion

The report concludes that creditors seeking to recover their losses in Israeli insolvency proceedings must navigate a complex and uncertain legal landscape, where priority and subordination can play a crucial role. As such, it is essential for secured lenders to carefully negotiate contractual provisions and understand the intricacies of Israeli insolvency law to maximize their recovery prospects.

“Israeli Insolvency Law 2019: A New Era for Creditors”
“Navigating the Complexities of Security Interests in Israeli Insolvency Proceedings”

Sources

Insolvency Law 2019
Israeli Companies Registry
Israeli Pledges Registry
Israeli court judgments and precedents