Clients updates / Insolvency and Debt Arrangements

The recent preference shown by the administrators of the insolvent ISBECO company toward the purchase offer from Hacarem Spirit indicates that, despite economic logic suggesting otherwise, the highest monetary offer will not always be the winning bid in the process.

A district court in Israel has ruled to impose personal liability on a company’s CEO and director for the company’s accumulated debt to the Registrar of Companies in respect of annual fees, after the company ceased operating, because the CEO and director refrained from opening court proceedings to liquidate the company.

The Israeli Supreme Court has ruled that legal advice given to directors who are members of an audit committee or an independent committee is not protected by attorney-client privilege and that the company (and the trustee who is subrogating for the company) own the legal advice. Consequently, a trustee appointed after a company collapses may receive documents and correspondence exchanged between directors and the company’s attorneys.

After a lawsuit filed by liquidators of a company that collapsed against the company’s former officers, directors, and independent auditors was dismissed in limine, a new Israeli Supreme Court ruling overturned that decision and allowed the liquidators to move forward with the lawsuit, alleging that lack of oversight was what led to the company’s collapse. The significance of this new ruling is that the “business judgment rule” will no longer be interpreted as providing automatic protection to executives, and they may now be compelled to participate in lengthy legal proceedings to prove their entitlement to legal protection.

How Israeli companies operating in the U.S. can use COVID-19 as a force majeure and the restructuring of debt in chapter 11 bankruptcy ?

Following a previous Israel Innovation Authority call for bids for companies developing technologies to help deal with the coronavirus crisis, the IIA has opened a channel to support companies facing financial hardships due to the virus.

Chapter 8 of the new Insolvency and Economic Rehabilitation Law addresses the liability of officers and functionaries. The law’s main innovation is that – beyond liabilities toward the corporation, which already existed prior to the enactment of the law, such as fiduciary duty and duty of care – special liability will also be imposed on the corporation’s officers and functionaries.

The Ministry of Justice recently published a new memorandum regarding an amendment to the Companies Law. This amendment seeks to authorize the Registrar of Companies to administratively strike off a company from the Companies Register.

According to a ruling handed down recently by the Israeli Supreme Court, when a real estate asset is sold before the seller enters bankruptcy proceedings, and the seller has not paid the betterment tax, the local council is not obligated to grant the buyer approval for registering the property under his name. Thus, the buyer will be required to pay the betterment tax.

Recently, the Knesset has passed the Law of Insolvency and Economic Rehabilitation – which is aimed at updating the law on insolvency currently in effect in Israel. The Law will take effect in 18 months from now.