An Israeli trustee says we must repay money our Israeli customer paid us before it collapsed. Can they do that?

Getting paid ahead of everyone else is exactly what the statute is aimed at. Section 219 of the Insolvency and Economic Rehabilitation Law 5778-2018 allows the court to cancel a payment or other action that gave one creditor a better outcome than the insolvency would have, where it was done in the three months before the application to open proceedings, or within one year where the recipient counts as a close party. The debtor is presumed to have been insolvent throughout that window.

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Detailed Answer

Three elements have to line up. The action must fall inside the look-back window, the debtor must have been insolvent when it was done, and the creditor must have received more than its share under the statutory order of distribution. The middle element is where the section does its real work, because the law presumes insolvency during the relevant period unless the contrary is proved, which reverses the ordinary burden and leaves a supplier arguing about the state of a customer's balance sheet it never saw. The remedy is a court order, so the trustee has to apply rather than simply demand, and until an order is made a letter from a trustee in Tel Aviv is a claim and not a debt. Section 219 sits alongside two neighbours worth knowing: Section 220 reaches transactions that stripped value from the estate without proper consideration, reaching back two years or four years for a close party, and Section 221 targets deliberate asset dissipation. A payment on an old overdue invoice, made suddenly and in full while other suppliers were being strung along, is the classic Section 219 fact pattern. A payment made on normal terms as part of a continuing trading relationship, particularly where you kept shipping goods afterwards, is the classic defence.

For a supplier in Lyon or Marseille the temptation is to ignore the letter, and that is the one thing that does not work. An Israeli trustee can obtain an order in your absence and then take it to a French court for recognition and enforcement, and an unanswered claim is far easier to enforce than a contested one. Assemble the commercial history before you answer: the account ledger showing the payment terms you always applied, correspondence showing the payment was ordinary rather than extracted under pressure, and proof of goods or services supplied after the payment, which supports the argument that the estate received value rather than merely losing money. If any part of your debt was secured, by a retention of title clause or a guarantee, say so early, because a secured creditor was not receiving more than its entitlement in the first place. Where the same insolvency also leaves you owed money, the defence and the debt claim run in parallel and should be handled together, as set out in our answer on recognition of a foreign bankruptcy in Israel and the trustee's reach over Israeli assets.

In Practice: Section 219 of the Insolvency and Economic Rehabilitation Law 5778-2018 allows cancellation of a preference given within three months before the application to open proceedings, or one year where the recipient is a close party, with insolvency during that period presumed against the recipient. Section 220 reaches value-stripping transactions over two years, or four years for a close party. The application is made by the trustee to the District Court supervising the file, and a contested clawback over a payment of NIS 300,000 typically takes 12 to 24 months and costs NIS 25,000 to NIS 60,000 in Israeli legal fees to defend.

When to Consult a Lawyer

• The payment was made in the final weeks before the customer filed, since that is squarely inside the window and the presumption of insolvency will do most of the trustee's work unless you rebut it with the trading history
• You are described in the trustee's letter as a related or close party, perhaps because of a shared shareholder or a director in common, because that stretches the look-back from three months to a year
• Your contract carried retention of title, a guarantee or a registered charge, as a properly secured creditor did not receive more than its due and the whole basis of the claim falls away

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Speak With an Israeli Attorney

A clawback demand is answerable, but only with the commercial file behind it and only inside the Israeli proceeding. We respond to the trustee, build the ordinary-course defence from your ledger and correspondence, and defend the application if it is made.

Contact us for a confidential initial consultation.