Debt Recovery Services in Israel

• Transactions in Israel usually transpire between domestic companies within 60 to 90 days, although these figures are much smaller when dealing with foreign firms.

• A new amendment of Israeli courts calls for the rapid investigation and execution of cases up to NIS 75,000 (EUR 18,000). Notwithstanding this, significant delays, expenses and challenges have to be anticipated in taking legal action, especially in cross-border disputes.

• Various insolvency procedures are open, although the likelihood of debt collection is low in reality when the applicant has become insolvent.

1. Summary

1.1. General financial information

1.1.1. All companies in Israel must register with the Companies Registrar, and all companies that are incorporated must disclose annual audited financial information to their shareholders. Nonetheless, there is no requirement to disclose such records, so there is a lack of transparency in the program and little accurate financial data is available to the public.

1.1.2. In Israel, on the other hand, there are firms dedicated to providing credit details that can provide very good and reliable information about any business.

1.2. Key legal structures

1.2.1. Corporate debt responsibility is defined by legal structures, listed as follows:

• Businesses that do not need a corporate entity may be run by one private individual known as a sole trader.

• Two or more individuals may also decide to share ownership and accountability through Partnerships (under the 1975 Partnership Ordinance), in which case the partners may be jointly and individually liable for other partners ' actions (while increasing the fundraising capacity). Additionally, joint agreements may sell the parties limited liability.

• Incorporated companies may also be relied on (as provided for under the 1983 Israeli Business Ordinance). Private Limited Companies are common as owners (up to 50 members) are only responsible for the obligations of the corporation in proportion to their capital investment and there is no minimum requirement for money. Larger enterprises would rather be set up through Public Joint-Stock Companies, which require a minimum capital of NIS 25 million. The shares are tradable in the thistype of the company and the shareholders are only liable for the value of their share, whereas debts can only be recovered on the assets of the company.

• Foreign investors frequently decide to settle in Israel by alliances or a separate organization that is autonomous of the parent company and capable of doing business.

1.3. Regulatory framework

1.3.1. Israel has a mixed legal environment that is also influenced by Civil Law, although it is based on common law principles. For several factors, Israeli courts have significant problems in coping with the flood of lawsuits. Second, domestic businesses are fast to launch court cases, and the law allows paying for legal expertise on a' no profit, no charge' basis, which ensures debtors ' ability to engage in lawsuits will operate against creditors.

1.3.2. Second, there are numerous procedural rules governing civil and commercial proceedings which make litigation rather complex and time consuming. Third, all documents must be translated into the official languages (Hebrew and Arabic) making it more complex for foreigners to handle the proceedings.

1.3.3. The judiciary is otherwise sophisticated and divides into different courts dealing with business claims as follows: 30 Magistrates Courts (Beit Mishpat HaShalom) throughout the country handle small business disputes of less than NIS 2.5 million (EUR 520,000), while providing for a specific execution institute (Hotsa'a Lapoal) responsible for enforcing judgments and unpaid checks, drafts and promises.

1.3.4. The Antitrust Tribunal deals with claims concerning non competitive practices, while the Jerusalem-based Standard Contracts Tribunal deals with actions brought against unfair contractual terms by consumers. District courts (Beit Mishpat Mehozi) also deal with all commercial disputes approaching NIS 2.5 million and consider appeal proceedings against judgments made by the Shalom Courts in the first place. Issuers of infringements of property and trade mark would usually be appealed to the District Court, even for small amounts.

1.3.5. Jurisdiction usually relies on the address of the claimant but many international trade cases would be handled by the Tel Aviv and Jerusalem courts, while maritime lawsuits would be dealt with in Haifa and Ashdod, where Israel's ports are based.

1.3.6. The Supreme Court (Beit Mishpat Elyon) would hear lawsuits brought against decisions rendered by the District Courts, as well as certain claims brought in connection with infringements of trademarks.

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Contracts in Israel are made by domestic companies within 60 to 90 days, although those figures are decreased for foreign companies. Delays of 15 to 30 days can however be anticipated if transfers are not covered. The domestic companies ' payment behavior changes from sector to sector.

2.2. Late interests

2.2.1. Late payment interest beginning from the original due date is normally paid in Israel, as long as the contract states that it should be compensated, although the statute does not provide any clear structure in this respect.

2.3. Costs of debt collection

The claimant can only be liable for the collection costs when a petition is lodged with the judge. These charges are used in action as a way of exerting pressure but would never be charged.

2.4. Protecting ownership

2.4.1. The use of Retention of Title (RoT) arrangements, which tend to retain possession of property before full payment of the relevant invoice, is an established practice in Israel, but case law has had a significant impact on their admissibility.

2.4.2. The courts have classified many of the RoT clauses as security interests (which, in order to be legitimate, must be registered with the Registrar of Pledges) and restricted their applicability, as they are deemed a mechanism for property defense rather than a right to give access to potential proceeds should the debtor default.

2.4.3. In fact, the courts will have to check whether the RoT was initially aimed at protecting property or retaining that importance, implying that RoT clauses enforced against insolvent debtors could only have a limited effect if the goods sold are still usable and visible. RoTs in Israel therefore have no margin of movement against preference rights of banks (in the context of floating charges) crystallizing as guarantees in insolvency proceedings, and thus rarely allow dividends to be obtained in insolvency proceedings.

2.5. Payments

2.5.1. The most common methods of payment are as follows: Bank transfers are among the most prevalent means of payment which implies that as they are easy, protected and funded internationally and domestically by an increasingly established banking network. Transfers are usually guaranteed for export transactions through an Export Credit Insurance policy which helps to minimize the risk of sudden or unforeseen insolvency of customers.

2.5.2. Additionally, Standby Letters of Credit (a bank promising the credit worthiness and recovery ability of the debtor) are valid promises that can be interpreted as a sign of good faith as they can be enabled as a' payment of last resort' if the borrower fails to fulfill a contractual obligation. Additionally, verified Documentary Letters of Credit (a debtor promises that a certain amount of money will be made available to a borrower through a bank once certain requirements have been satisfied, explicitly decided upon by the parties) can be called.

2.5.3. There are generally local bank guarantees available, but they remain more expensive than in other developed countries. Promissory notes and checks are also useful collateral instruments, since they are known to be transferable assets that can be imposed with the court if the issuer defaults. Ultimately, it is best to compensate 30 percent of sales in full and negotiate down payments.

‍

‍

3. Collecting payments

3.1. Amicable action

3.1.1. The lengthy and drawn out legal system ensures that polite mediation agreements are the best solution to criminal litigation. Until commencing legal proceedings against a debtor, wealth appraisal is necessary to ascertain whether the debtor is still successful and whether the chances of recovery are the highest.

3.1.2. Therefore, knowledge of the debtor's solvency condition is essential: once insolvency proceedings have been started, debt collection often becomes unlikely. It may also be worth considering whether the contract allows to have international or arbitral tribunals before launching a substantive disagreement.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. Given the complexity of carrying out legal action in Israel, it is essential to ensure first that legal action only begins when all friendly opportunities for negotiation have been exhausted.

3.2.2. Various fast-track prosecutions may also help to resolve reimbursement problems without having to continue with an ordinary bargain. These are valid when the demand is for certain and undisputed liquidated sums up to NIS 75,000 (EUR 18,000): in such a situation, the applicant files the petition with an affidavit along with documented proof of the value of the debt. The claimant has 45 days to file a defense with an affidavit (there's no need to seek approval from the court).

3.2.3. Another easy way to receive restitution is through a quicker procedure (injunction) that can be sent directly to the Hotsa'a Lapoal: there is a limit on the amount requested (NIS 75,000/EUR 18,000) and it must be focused on clear evidence that the claimant is unable to refute (e.g. debt-signed acknowledgement). If the case is rejected, the claimant will need to ask for special court approval to lodge an appeal. If permission is granted, it will become an ordinary process; otherwise, a decision will be made.

3.2.4. The object of the originating motions process is to resolve disputes which affect one's rights (i.e. property rights, creditor status, etc.). The ordinary case must be based on the facts of the allegation supported by the supporting documentation and the complainant and defense claims. If the choice exists to begin formal legal action, a lawsuit may be lodged with the appropriate court (depending on the amount at stake) and a summons must be issued upon the debtor.

3.2.5. Within 30 days, the debtor has to bring a defence. During a pre-trial hearing, the plaintiffs are given an opportunity to negotiate and talk, which also gives them a chance to resolve the dispute amicably. If no compromise is reached, then proof and arguments from the parties will be examined. Once the evidence hearing has been held, and summaries of the parties have been submitted, the court may render its decision. It should be added that, in practice, the parties may ask the court to extend the time limits set out in law, which are frequently granted.

3.2.6. In the form of compensatory damages, obligatory or prohibitive injunctions and declarative rulings, Israeli courts which grant compensation however punitive damages are not permitted by law.

3.2.7. Required documents. Invoices, account statements, receipts, purchase orders, notifications of distribution, lading bills, arrangements between the parties, promissory notes or promises.

3.2.8. Time limits. Civil cases usually have to be taken before the trial within seven years of the time the object of the case occurred.

3.2.9. Precautionary measures. Pending a final decision, precautionary measures may help to preserve the interests of the debtor. The courts can, in effect, impose temporary steps designed to protect properties (attachment orders) or prohibit the debtor from leaving the country.

3.2.10. Nevertheless, the complainant will prove that it has a strong case, and that imposing such interventions will deter irreparable harm from happening. In emergency situations, the same day orders can be obtained if the courts agree to render ex parte decisions (in the absence of the debtor), but to protect the respondent from irresponsible action, the claimant would be asked to provide security on costs.

3.2.11. Appeal lodging. The losing party can, within thirty days of notice of the verdict, lodge an appeal against the judgment made in the first instance before the higher court. Nevertheless, it is necessary to obtain the approval (leave for appeal) from the court which would then examine the ruling, taking into account the factual and legal issues.

3.2.12. Decisions handed down in second instance may also be put before the Supreme Court against which prizes are valid and binding on the parties. However, the Supreme Court has sole authority to consider legal questions.

3.2.13. Enforcing court decisions. A verdict shall be enforceable as long as it becomes definitive (i.e. when all the areas of appeal are exhausted). If the debtor fails to satisfy the judgment, an appeal for mandatory compliance of the judgment through the Execution Institute (Hotsa'a Lapoal) might become essential. Getting an attorney is a must.

3.2.14. Duration of a legal action. Uncontested claims in Israel will usually be settled within six to nine months, but it could take up to three years if the disputes are challenged legal proceedings. The length of court cases in Israel generally ranges from case to case and is difficult to predict, although prosecutions last on average for three years.

3.2.15. Costs of a legal action. Until a verdict is reached, legal costs would be about 5 percent of the sum contested, but not EUR 3,000 in less than.

3.3. Alternatives to legal action

3.3.1. Alternative Dispute Resolution Procedures (ADR). In Israel, alternative methods of resolution such as mediation and arbitration are becoming increasingly common given the difficulty in receiving prompt decisions from the courts.

3.3.2. Mediation involves the appointment of a mediator who is in charge of helping the parties reach a compromise. The mediator has no decision-making authority on behalf of the parties, and can not bind the parties to a decision. The arbitration is only final where a settlement agreement is reached at the conclusion of the negotiations between the parties.

3.3.3. The Mediator serves as mediation facilitator. The agreement is usually sent to court in practice, which then assures it to give it the value of a binding judgement. Arbitration requires the parties agreeing to rely on an independent and impartial arbitrator from a third party who has the power to resolve a disagreement on their behalf. Decision of the arbitrators will be binding upon the parties.

3.3.4. ADR can be cost-effective as an out-of-court mediation process, usually minimizing deadlines (awards will typically be made within three to nine months), enabling secrecy to be maintained and delivering a legal judgment that can then be imposed before the courts if appropriate. The legal tribunal may also be regarded when concerning international transactions. Precautionary measures (see above) are normally within the jurisdiction of the courts, but in practice arbitration tribunals are increasingly given the freedom to award such orders.

3.3.5. Foreign forums. Foreign traders wanting to avoid overly busy courts may agree to resolve their business disputes in a foreign forum (i.e., under foreign law or before a foreign court), but it is not straightforward to have foreign jurisdiction clauses in Israel. First, the case law imposed considerable constraints on how the clauses should be worded to be applicable and effective.

3.3.6. Secondly, in certain circumstances, the choice of a foreign jurisdiction may be construed as a depriving condition designed to deter the parties from enforcing their rights, and could therefore be void. It should not be deemed facultative to pursue professional legal advice on the subject.

3.3.7. Enforcing international awards. When the parties propose receiving a verdict from a foreign court to minimize complications, or when a foreign ruling has to be imposed in Israel because a debtor has properties in the land, ensuring that the judgment is accepted by Israeli courts is first of all necessary. Yes, as a general rule, the courts must accept international rulings as domestic decisions before they are applied (through a bailiff), although specific rules apply.

3.3.8. Compliance under the International Decision Enforcement Act of 1958 happens in District Courts through an exequatur process to ensure that certain conditions have been satisfied by the international prosecutions. It must be provided, in particular, that the issuing foreign court has authority to decide on the matter, that the judgment is definitive (i.e. that all appeal options have been exhausted) and enforceable in the issuing region, and that implementation of the foreign decision does not violate Israeli public policy. In order to be accepted, international cases must also be placed before the Court within five years.

3.3.9. It is interesting to point out that Israel has only four mutual acknowledgement and compliance arrangements with foreign countries (Austria, Germany, Spain and the United Kingdom), but that, compared to many nations, it does not allow the presence of a treaty to accept and implement a foreign agreement as long as the requirements listed above are fulfilled and as long as the sending nation has a waiver.

3.3.10. Israel is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and its domestic courts should therefore recognize and enforce awards issued by international arbitration proceedings.

4. Managing insolvent debtors

4.1. Insolvency in Israel

4.1.1. Regulations on insolvent businesses consists primarily of the 1983 Businesses Ordinance (as amended), the 1980 Bankruptcy Ordinance, and the 1999 Companies Act.

4.1.2. Three key ways of coping with insolvent businesses are recognised under Israeli law: cooperative settlement between the firm and its shareholders, liquidation of the company and receivables. Both insolvency proceedings may be launched either by the claimant or his shareholders, but the courts may tend to give preference to the creditors over the interests of the company and third parties in each form of proceeding.

4.2.  Insolvency proceedings

4.2.1. Out-of-Court proceedings. No particular out-of-court cases are called for in statute.

4.2.2. Debt restructuring. Formal rescue proceedings occur under section 350 of the Companies Act. Upon approval of the petition for insolvency, the court shall order a meeting of the parties aiming at a compromise on restructuring. A proposal is drafted by the debtor and must be approved by a majority of the participants (representing at least 75 percent of the value present at the vote), but the law does not impose any limitation on how much of the debt has to be repaid in order to deem the proposal acceptable. The recommendation is then approved and becomes legal by the tribunal.

4.2.3. Typically this action is followed by a motion to appeal for a delay in the process aimed at protecting the claimant against concurrent demands for compliance. A trustee is given liability for overseeing the business in lieu of the executives during the proceedings.

4.2.4. Winding up proceedings. Where the debt can not be restructured, liquidation proceedings may be initiated at the request of the debtor (voluntary liquidation) or creditors with a view to realizing the assets of the company. The court appoints a liquidator with whom the investors are required to file evidence of claim within nine months of the actual structured liquidation date.

4.2.5. The liquidator subsequently takes liability for running the business, selling the properties and administering the proceeds from the sale to the various investors taking into account preference privileges. Alternatively, receivership processes are undertaken by secured creditors in order to enforce particular contractual agreements and to reclaim certain obligations, as this can be achieved to the advantage of other shareholders, as they are not covered.

4.2.6. Priority rules. Generally, priority rules apply when transferring the profits to the creditors. The procedural costs, together with certain tax debts, would first be considered as priority debts. Providers of' fresh money ' loans would also be given special priority over the proceeds during the insolvency proceedings, provided the court recognizes the necessary nature of such debts. Contract rates (such as pledges) would then rank higher than favored investors (such as staff and tax authorities) and holders of floating payments. Unsecured creditors would last and therefore never get any recourse on their debts. RoTs could be of limited effect, as already stated.

4.2.7. Cancelation of suspicious transactions. After acceptance by the judge, trustees and liquidators that cancel transactions made within a suspect span of three months prior to the insolvency proceedings. Accordingly, deals benefiting one borrower over the others or reducing the value of the assets (fraudulent deeds, undervalued or gratuitous activities, etc.) may usually be invalid.

4.2.8. Duration of insolvency process. Insolvency cases are on average taking two or three years.

4.2.9. Required documents. Invoices, and account declaration.