Justice Ministry Seeks to Empower Registrar to Strike Companies from Companies Register

The Ministry of Justice recently published a new memorandum regarding an amendment to the Companies Law, 5759 – 1999. This amendment seeks to authorize the Registrar of Companies to administratively strike off a company from the Companies Register, as is customary among other registrars throughout the world, and to regulate the mode and criteria for exercising this authority.

The memorandum reported that many companies currently classified as “law braking companies” pursuant to the Companies Law (because of their failure to fulfill their obligations to pay an annual fee or to file annual reports) are registered as active companies in the Companies Register, even though they are not deemed active by the Israel Tax Authority (either their tax file has been closed, they are in the process of dissolution, or they never opened a tax file). Thus, the register includes many companies with outdated details that appear to be active. Such an outdated register is liable to lead to abuse by inactive companies also for criminal purposes (such as tax evasion). As a clean-up of the Companies Register is in the best interests of the public, the amendment proposes that the Registrar be given the authority to strike off companies that have been declared “law braking companies.”

If the Registrar intends to strike off a company, he must publicize a notice on the Ministry of Justice’s website and send a notice to the company’s registered address. Oppositions to the strike off may be submitted within 90 days of the notice publication date. If no oppositions are submitted within that time frame, and 10 business days have elapsed since the deadline for submitting oppositions, the Registrar shall strike off the company from the Companies Register and the company shall be administratively dissolved as of that date.

However, this does not mean that a notice of intention to strike off will be issued to every offending company. Only when the Registrar has reasonable grounds to assume that a particular company is not conducting business (after having analyzed the company’s data at the Israel Tax Authority, in addition to other potential examinations), or that it has no assets or debts (apart from annual fee debts pursuant to the Companies Law), will the Registrar notify of strike off. If it becomes evident that a deregistered company does have creditors or assets, the company will be required to conduct a liquidation proceeding in court if it wants to complete its dissolution, or to conduct a proceeding to resurrect the company.

We advise that the proper way to strike off an inactive company from the Companies Register is dissolving the company by way of voluntary liquidation at the company’s initiative, and as it assumes its requisite responsibilities and liabilities vis-à-vis third parties. Nevertheless, considering the huge volume of inactive companies, as well as the Corporations Authority’s past experience, the assessment is that a large percentage of companies will not initiate a process of voluntary liquidation.

In a related matter, we note that in September 2019 an indirect amendment to the Companies Law will come into effect, within the scope of the Insolvency and Economic Rehabilitation Law. This amendment will enable companies that fulfill particular criteria to dissolve in an accelerated proceeding (also of voluntary liquidation).

The amendment also proposes to prescribe an arrangement for rescinding a company’s deregistration. The court will be allowed to rescind the strike off and resurrect the company at the request of a shareholder or creditor, and to issue any order required to revert the company and any individual to the status quo ante, were the company not deregistered, subject to the following conditions:

• the application was filed up to 20 years after the publication of the notice of strike off;
• Ÿthe company was administratively deregistered but did not actually dissolve after liquidation;
• the company is conducting business, or, on the date of its administrative dissolution by way of strike off, it had debts or assets;
• Ÿother conditions that, in the court’s opinion, justify rescinding the strike off.

Furthermore, pursuant to the amendment, the Registrar will also be allowed to rescind a strike off of a company that was not actually dissolved after liquidation within two years of the strike-off date, at his initiative or at the request of the company, a shareholder, or a creditor.