Will an Israeli court recognise my foreign bankruptcy, and can a foreign trustee reach my Israeli assets?

Israel used to be a difficult place to reach from an English bankruptcy. That changed when the Insolvency and Economic Rehabilitation Law 5778-2018 came into force in September 2019, bringing with it Chapter 9 on international insolvency, which is built on the UNCITRAL Model Law on Cross-Border Insolvency. A trustee appointed by the English court can now apply directly to an Israeli court for recognition of the English proceeding, and once recognised as a foreign main proceeding, the consequences attach automatically. Israeli-registered land, an Israeli bank account and shares in an Israeli company are all within reach.

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Detailed Answer

The mechanics are compact. Under Section 300 the foreign representative files the application, supported by an affidavit listing every foreign insolvency proceeding known to be running against the debtor and formal proof of both the opening of the proceeding and the representative's own appointment. Section 301 sets what the court must be satisfied of and, importantly, directs it to decide as expeditiously as possible so that assets are not dissipated while the paperwork is checked. The court then classifies the proceeding. A foreign main proceeding is one opened where the debtor's centre of main interests lies; a non-main proceeding is one opened where the debtor merely carries on genuine economic activity. That classification decides everything that follows. Recognition of a main proceeding under Section 302 triggers an automatic stay of the same scope as the opening of an Israeli insolvency: payment of debts is suspended, pending proceedings freeze, and the debtor cannot transfer or encumber assets. The court may go further and authorise the foreign representative to administer and even realise Israeli assets and distribute the proceeds. Section 303 is deliberately meaner to a non-main proceeding, where relief is available only for assets properly administered in that proceeding or information genuinely needed, and only where creditors need protecting or asset value preserving.

For a debtor sitting in London, the practical point is that no Israeli creditor has to do anything for this to happen, and the Israeli register does not warn you. Land at the Tabu carries no note that its owner is bankrupt abroad until the trustee obtains an order and registers one, which means many debtors first learn of the position when a sale falls through at the last minute. The reverse is equally true and often more useful: an Israeli creditor of a bankrupt in England has the same standing in the English proceeding as an English creditor, and a foreign creditor of an Israeli insolvency has identical rights to an Israeli one. Whether recognition is a threat or an opportunity therefore depends on which side of the file you sit. If the concern is an Israeli creditor moving against your account before any of this begins, that is a separate mechanism, covered in our answer on an Israeli creditor attaching a non-resident's bank account.

In Practice: Recognition runs under Chapter 9 of the Insolvency and Economic Rehabilitation Law 5778-2018, in force since September 2019. The application is made under Section 300, the recognition conditions sit in Section 301, the automatic consequences of a foreign main proceeding in Section 302 and the narrower relief for a non-main proceeding in Section 303, with the Commissioner of Insolvency Proceedings (HaMemuneh al Halichei Chadlut Pira'on) at the Ministry of Justice a party to the process. Budget NIS 25,000 to NIS 60,000 in Israeli fees for a contested recognition application, and expect six to twelve weeks from filing to a first substantive decision, less where the court is persuaded assets are at risk.

When to Consult a Lawyer

• You are bankrupt or in an IVA abroad and hold Israeli-registered land, because a sale or mortgage completed after the foreign order without disclosure can be unwound and exposes you to a criminal complaint in the foreign proceeding.
• You are an Israeli creditor of someone made bankrupt abroad and are considering enforcement in Israel. Enforcement after recognition of a main proceeding is stayed, and steps taken in the window before recognition can be attacked.
• Your centre of main interests is genuinely arguable, for example you moved to Israel in the two years before the foreign petition. Whether the foreign proceeding is main or non-main changes what the trustee can touch.

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Speak With an Israeli Attorney

We act for foreign trustees seeking recognition in Israel and for debtors and creditors on the receiving end, including the register searches that reveal whether an Israeli asset has already been frozen.

Contact us for a confidential initial consultation.