Quick Answer: A company arrangement under Section 350 of the Companies Law 5759-1999 is Israel's principal corporate debt-restructuring mechanism. When an Israeli company in financial difficulty proposes an arrangement, the District Court appoints an arrangement administrator (manhel hasvadra) and stays all creditor enforcement. A creditors' meeting is then convened: if the proposal is approved by a majority in number and 75% in value within each creditor class, the court can sanction the arrangement and make it binding on every creditor in that class, including dissenters. Foreign creditors must register their claims, participate in the vote, and file objections before court sanction if the terms are unfair. Wait too long, and the right to challenge is gone.

You are owed money by an Israeli company. Your Execution Office enforcement file is open, and then you receive a legal notice (in Hebrew) that the company has applied to the Tel Aviv District Court for a company arrangement under Section 350 of the Companies Law 5759-1999. Your bank attachment is suspended. A meeting of creditors is scheduled for six weeks from now. What happens to your debt?

A company arrangement is the Israeli equivalent of a UK scheme of arrangement or a US Chapter 11 plan of reorganization. Unlike personal insolvency, which is governed by the Insolvency and Economic Rehabilitation Law 5778-2018, company restructuring in Israel still operates primarily through Section 350 of the Companies Law 5759-1999 (and, for larger restructurings, Section 351 on corporate liquidation). The mechanism allows a company to propose a binding deal with its creditors, restructure its debts, and continue trading, provided a qualified majority of creditors agree and the court approves. For foreign creditors holding commercial debts, guarantees, or court judgments against Israeli companies, understanding how this works is the difference between recovering a meaningful fraction of a claim and receiving nothing.

1. What Is a Section 350 Company Arrangement?

A company arrangement (haskamat noshim) is a court-supervised agreement between a company and some or all of its creditor classes that restructures the company's obligations. The arrangement can take many forms:

  • A debt haircut: creditors agree to accept less than the face value of their claims (e.g., 40 cents on the shekel)
  • A maturity extension: the debt is rescheduled over three to seven years at reduced interest
  • A debt-for-equity swap: unsecured creditors receive shares in the restructured company
  • A hybrid: partial cash payment plus extended terms on the balance
  • An asset sale to a third party, with proceeds distributed to creditors according to an agreed waterfall

Section 350's binding effect is both its most powerful feature and its biggest trap for creditors who ignore the proceedings. Once the court sanctions an arrangement, it becomes binding on every creditor within the relevant class, including those who voted against it. A creditor who receives proper notice of the creditors' meeting but fails to participate cannot later challenge the approved arrangement on the grounds that they would have voted differently.

The mechanism applies only to companies: Israeli private companies (chevra pratit), public companies (chevra tzibur), and foreign companies registered in Israel. Personal guarantees given by individuals remain governed by the Insolvency and Economic Rehabilitation Law 5778-2018, even when the primary obligor enters a Section 350 arrangement. If an Israeli company owes you money and its sole shareholder has guaranteed the debt, you may find yourself in two simultaneous proceedings: a Section 350 company arrangement for the company's liability and a personal insolvency proceeding for the guarantor's.

In Practice — Section 350 vs. Winding-Up: The Key Difference: A UK equipment supplier was owed NIS 1.4 million by an Israeli manufacturing company. The company had stopped paying, and the UK supplier had opened an Execution Office file. Two other large creditors (an Israeli bank with a NIS 3.8 million mortgage and a German raw material supplier owed NIS 780,000) simultaneously filed a winding-up petition at the Tel Aviv District Court under Section 257 of the Companies Law 5759-1999 seeking the company's liquidation. The Israeli company, rather than accept liquidation, filed a cross-application under Section 350 seeking court approval to present a restructuring plan. The District Court stayed the winding-up petition and appointed an arrangement administrator. Under the eventual arrangement, the UK supplier received 35% of its NIS 1.4 million claim (NIS 490,000) over 18 months, compared with the liquidator's projection of 8–12% recovery had the winding-up proceeded. The distinction mattered: an operating company generating cash flow can fund a far better arrangement than the forced fire-sale of manufacturing assets in a liquidation.

2. How the Process Begins: Filing and the Stay

A Section 350 arrangement is initiated by an application to the District Court. The applicant is usually the company itself, though creditors, shareholders, or a court-appointed liquidator can also apply. The application must include:

  • A description of the company's current financial position: assets, liabilities, and a creditor schedule
  • A proposed arrangement or a request for time to formulate one
  • A list of all creditor classes and the proposed treatment of each class
  • An explanatory statement (divrei hasbara) explaining the arrangement to creditors

On receiving the application, the District Court issues an initial order under Section 350(b) appointing an arrangement administrator and, critically for creditors, granting a stay of proceedings (ikuv halichim). The stay suspends all civil claims against the company, all Execution Office enforcement actions, and all bank attachments. It does not affect criminal proceedings, regulatory enforcement by the Israel Securities Authority (ISA) or Bank of Israel, or employee wage claims through the National Insurance Institute (NII).

The arrangement administrator is typically a certified accountant or attorney appointed by the court. Their role combines elements of a US Chapter 11 debtor-in-possession trustee and a UK insolvency practitioner: they oversee the company's day-to-day management (or supervise the existing management), investigate the company's affairs, identify all creditors, convene the creditors' meeting, and recommend to the court whether to sanction the arrangement. Administrator fees are paid from company assets ahead of all creditors and typically run from NIS 80,000 to NIS 350,000 for mid-sized proceedings, rising to NIS 500,000 or more for complex cases involving multiple creditor classes.

In Practice — Stay on Execution Office, Section 350(b) Companies Law: A French company held a NIS 920,000 Magistrate Court judgment against an Israeli technology distributor. The Tel Aviv Execution Office had already levied attachments on three Israeli bank accounts holding a combined NIS 67,000 when the distributor applied for a Section 350 arrangement. The District Court's initial order under Section 350(b) stayed the Execution Office file immediately. The NIS 67,000 attached in the bank accounts was not yet transferred to the Execution Office payment account, so it was caught by the stay and reverted to the company's general assets, available to all creditors through the arrangement. Had the Execution Office transferred the funds to the payment account before the stay, the French company might have retained it, though a creditor preference challenge under general principles would have been possible. The French company filed its creditor claim in the arrangement proceeding for the full NIS 920,000 judgment. The lesson: speed of payment processing at the Execution Office can determine whether a creditor keeps money already attached when a company enters a Section 350 proceeding.

3. The Creditors' Meeting and the Vote

After the stay order, the arrangement administrator must notify every known creditor of the proposed arrangement and the date of the creditors' meeting. Notice must be sent by post (or electronically where email addresses are on file) to each creditor's last known address, including foreign addresses. The Companies Regulations (Arrangement and Compromise) 5763-2003 require that creditors receive at least 21 days' advance written notice of the meeting, together with the full explanatory statement, the proposed arrangement terms, and the creditor's registered claim amount.

How creditors are classified

Creditors are divided into voting classes based on the nature and rank of their claims. Typical classes include:

  • Secured creditors — banks or other lenders holding a registered charge or mortgage over specific company assets
  • Priority creditors — employees with wage claims, NII, and Israel Tax Authority (ITA) for certain tax debts
  • Senior unsecured creditors — bondholders or note-holders with contractual seniority
  • General unsecured creditors — trade creditors, judgment creditors, guarantee holders

Most foreign commercial creditors (those holding unpaid invoices, court judgments, or personal guarantees) fall into the general unsecured class. Placement in that class means sharing any recovery pro-rata with all other unsecured creditors, after secured and priority creditors are satisfied.

The approval threshold

Within each class, the arrangement must be approved by:

  1. A majority in number of creditors who voted, and
  2. At least 75% in value of the claims voted within the class

Both conditions must be satisfied simultaneously within the same class. A creditor who does not submit a vote before the meeting is treated as absent, counted neither for nor against. Abstentions are not counted in either direction. This means that a large creditor holding 76% of a class's total claim value can approve an arrangement unilaterally from a value perspective, even if every other creditor in the class votes against. Conversely, many small creditors can form a numerical majority but still be overridden if their collective claim value is less than 75% of the class total.

In Practice — Voting Threshold in Action, Companies Regulations 2003: An Israeli retail chain in Section 350 proceedings had three creditor classes in the unsecured category: an Israeli bank (NIS 12 million, classified separately as a secured creditor), the ITA (NIS 2.1 million in priority tax debts), and a general unsecured class comprising 47 trade creditors with aggregate claims of NIS 8.4 million. Among the 47, a German fashion label held the single largest claim of NIS 3.8 million (45% of class value). The proposed arrangement offered unsecured creditors 28% of their admitted claims over 24 months. Thirty-one of the 47 creditors (holding NIS 4.2 million, exactly 50% of class value) voted against. Sixteen creditors (NIS 4.2 million, 50% of class value) voted in favour, including the German label. Since the 75%-in-value threshold was not met, the arrangement was rejected by that class and the company moved to liquidation. Had the German label held just over NIS 6.3 million (75% of class value), it alone could have approved the arrangement over all other creditors' objections.

4. Court Sanction and the Arrangement Stay

A successful creditor vote does not automatically make the arrangement binding. After the vote, the arrangement administrator returns to the District Court for a sanction hearing (dikuv beyeit hamishpat). The court reviews:

  • Whether the notice procedure was proper and all creditors had a genuine opportunity to participate
  • Whether the voting classes were correctly constituted, grouping creditors with sufficiently similar interests together
  • Whether the arrangement is "fair and reasonable" to dissenting creditors in a class that approved
  • Whether the arrangement is more favourable to all unsecured creditors than an immediate liquidation would be
  • Whether any fraud, material misrepresentation, or procedural irregularity occurred in the process

The court has broad discretion to approve, reject, or modify the arrangement. Approval is by way of a court order under Section 350(c), which is then registered in the Companies Register at the Registrar of Companies. From that moment, the arrangement is legally binding on every creditor in each approved class, including those who voted against.

Creditors who believe the arrangement is unfair must file their objections before the sanction hearing — not after. An appeal of a sanction order goes to the Court of Appeal (Beit HaMishpat HaElyon) and must be filed within 45 days of the sanction order. Appeals of company arrangement sanctions succeed in a minority of cases; Israeli courts give substantial deference to the outcome of a properly conducted creditor vote.

In Practice — Court Refuses to Sanction Arrangement, Section 350(c) Companies Law: A Belgian pharmaceutical company was owed NIS 1.9 million by an Israeli distribution company. The arrangement proposed paying unsecured creditors 20% of admitted claims over 36 months. The creditors' meeting approved the arrangement with 78% in value voting in favour. At the sanction hearing, the Belgian company's Israeli attorney filed an objection under Section 350(c), presenting a liquidator's valuation report showing that an immediate liquidation of the company's warehouse inventory and receivables would yield 31 cents on the shekel for unsecured creditors, more than the proposed 20 cents. The District Court judge accepted the argument: under the "no creditor worse off than liquidation" standard, an arrangement must offer at least what a fair liquidation would produce. The court refused to sanction the arrangement and referred it back for renegotiation. The company ultimately proposed 30% over 24 months, which was approved and sanctioned. The Belgian company recovered NIS 570,000 on its NIS 1.9 million claim, NIS 190,000 more than the original arrangement would have provided.

5. Priority and What Creditors Actually Receive

A Section 350 arrangement sets a negotiated waterfall for distributions, but the negotiating reality is shaped by the statutory priority hierarchy that creditors would receive in an outright liquidation. Understanding that hierarchy gives creditors a baseline for assessing whether a proposed arrangement is acceptable.

The relevant priority order in both arrangement and liquidation proceedings is:

  1. Arrangement administrator fees and proceedings costs: paid from company assets before anything reaches creditors
  2. Priority creditors under the Companies Law and the Insolvency and Economic Rehabilitation Law 5778-2018:
    • Employee wage claims for the last 3 months of employment (up to NIS 33,020 per employee as of 2026)
    • Pension fund contributions and provident fund contributions owed by the company
    • National Insurance Institute (NII) contributions owed by the company as employer
  3. Secured creditors: paid from proceeds of their specific collateral (mortgage, registered charge, floating charge)
  4. Preferential ITA debts: Israel Tax Authority claims for the two years immediately preceding the arrangement application
  5. Ordinary unsecured creditors: trade creditors, foreign judgment creditors, guarantee holders, sharing pro-rata in the residual

In practice, categories 1 through 4 consume most of the company's available assets in a heavily indebted Israeli company. Foreign trade creditors and judgment holders typically fall into category 5 and should base their expectations on realistic residual value, which in many cases amounts to 10% to 40% of admitted claims, depending on whether the company has any meaningful going-concern value beyond its debts.

In Practice — Distribution Waterfall, Israeli Company Arrangement: An Israeli construction company applied for a Section 350 arrangement with total debts of NIS 18.4 million. The priority hierarchy worked out as follows: arrangement administrator fees consumed NIS 420,000; employee wage priority claims (22 employees, 3 months each) totalled NIS 726,000 (NIS 33,020 per employee); NII priority contributions were NIS 88,000; the Israeli bank's secured claim over specific equipment was settled for NIS 2.1 million (the bank's separately appraised collateral value); the ITA's preferential two-year tax claim was NIS 340,000. After these four categories were satisfied, NIS 3.2 million remained for general unsecured creditors holding aggregate admitted claims of NIS 14.7 million: a recovery rate of approximately 21.8%. A German subcontractor with an admitted claim of NIS 650,000 received NIS 141,700. Three other foreign suppliers collectively received NIS 290,000 on NIS 1.33 million in admitted claims.

6. How to Challenge a Company Arrangement Before It Is Sanctioned

A creditor who believes the arrangement is unfair has a narrow window to act. Challenges must be made before court sanction, either at the sanction hearing or by written objection filed beforehand. Grounds that Israeli courts have accepted as basis for refusing or modifying sanction include:

  • Breach of the "no creditor worse off" standard: If independent valuations show that a fair liquidation would yield more than the arrangement offers unsecured creditors, the court can refuse sanction
  • Improper class composition: If secured and unsecured creditors were improperly lumped into the same voting class, or distinct sub-classes of creditors were merged to dilute dissenting votes, the vote result can be challenged as procedurally defective
  • Failure of proper notice: A creditor denied adequate notice (including one at a foreign address who received notice in an insufficient form) can challenge the vote on procedural grounds
  • Fraud or material misrepresentation: If the explanatory statement omitted material assets or understated the company's recoverable value, a creditor who relied on that information in voting can raise a fraud objection
  • Related-party self-dealing: Where major shareholders are also creditors and have received preferential treatment under the arrangement, the court may require adjustment

Challenges are filed as formal objections (hitchatzvut) to the arrangement application at the District Court. Filing requires the assistance of an Israeli attorney; there is no prescribed court fee for objections, but preparation typically costs NIS 15,000 to NIS 45,000 in attorney fees depending on complexity.

In Practice — Class Composition Challenge, Section 350 Companies Law: A Swiss bank held a NIS 4.8 million claim against an Israeli company, secured by a registered floating charge (mashkon tzaf) over the company's inventory. The arrangement administrator placed the Swiss bank in the same general unsecured creditor class as 38 trade creditors, arguing the floating charge was not a fixed-asset security and therefore the bank was effectively unsecured for voting purposes. The 75% threshold was met across the combined class, with the 38 trade creditors providing the majority in value. The Swiss bank objected at the sanction hearing, arguing that a floating charge holder must be classified separately from pure unsecured creditors, since their legal rights and economic interests are fundamentally different. The District Court agreed: the floating charge conferred priority over inventory proceeds that an ordinary unsecured creditor did not have. The court remanded the matter for a new creditors' meeting with a separate secured-creditor class. In the reconvened meeting, the Swiss bank, as the sole member of its class, voted against the arrangement. Since the arrangement could not be sanctioned without all classes approving (and no cram-down was available on these facts), the company moved to liquidation. The Swiss bank recovered NIS 3.7 million from the inventory sale through the Execution Office, representing 77% of its claim, significantly more than the 28% the arrangement had offered.

7. Secured vs. Unsecured Creditors: Very Different Outcomes

Whether you hold a registered security interest over Israeli company assets fundamentally changes your position in a Section 350 proceeding. Foreign creditors who supplied goods or services on open credit, or who hold a court judgment without a registered lien, are almost always general unsecured creditors.

Secured creditors

A creditor with a registered fixed charge (mashkon kavu'a) or mortgage over specific company assets sits outside the general arrangement waterfall for the value of that collateral. Israeli courts will not approve an arrangement that forces a secured creditor to accept less than the realizable value of their security, unless the secured creditor consents or the court applies a "cram-down" (available only in limited circumstances and only where the secured creditor receives at least the collateral's liquidation value). If you are a foreign bank or lender with a registered charge over Israeli assets, your security rights are substantially stronger than in a liquidation, so get an independent appraisal of the collateral before any arrangement meeting.

Unsecured creditors

Unsecured creditors (where most foreign trade creditors and guarantee holders end up) are bound by the class vote and receive whatever the arrangement allocates. Their leverage comes from two sources: the threat to vote down the arrangement and force liquidation (which motivates the company to offer something meaningful), and the right to challenge the arrangement at the sanction stage. Foreign creditors with large claims should coordinate with other major creditors in the same class before the meeting; a creditor holding even 26% of class value can block an arrangement from meeting the 75% threshold.

In Practice — Coordinated Creditor Blocking Strategy, Section 350 Companies Law: An Israeli e-commerce company proposed a Section 350 arrangement offering general unsecured creditors 18% of admitted claims over 30 months. The general unsecured class included 52 creditors with aggregate claims of NIS 11.2 million. Three foreign suppliers coordinated before the creditors' meeting through a shared Israeli attorney: a Dutch logistics company (NIS 1.8 million), an Italian manufacturer (NIS 1.2 million), and a UK software licensor (NIS 960,000). Their combined claims were NIS 3.96 million, 35.4% of class value and comfortably above the 25% needed to block. They told the arrangement administrator they would vote against 18% and would support a minimum of 32%. The company, facing liquidation at roughly 9 to 14 cents per shekel otherwise, revised its offer to 30% over 24 months. The three foreign creditors voted in favour. The arrangement was approved (81% in value, 38 creditors in favour). The Dutch company received NIS 540,000, the Italian manufacturer NIS 360,000, and the UK licensor NIS 288,000, collectively NIS 1.188 million more than the original 18% offer would have produced.

8. What Foreign Creditors Must Do Immediately

A Section 350 proceeding moves on a fixed timetable that does not slow down for creditors who do not know Hebrew or are unfamiliar with Israeli commercial law. The moment you receive any notice, however informal, that an Israeli company you are owed money by has applied for a Section 350 arrangement, take these steps without delay.

Step 1: Retain Israeli counsel immediately

All notices, the explanatory statement, and the arrangement proposal will be in Hebrew. All objections and claim forms must be filed in Hebrew at the District Court handling the proceeding. Retain an Israeli attorney with commercial insolvency experience within days of learning of the proceeding — not weeks. The 21-day advance notice period before the creditors' meeting is the minimum; by the time a foreign-address notice arrives by post and is translated, the window can be much shorter than it appears.

Step 2: Register your claim with the arrangement administrator

The arrangement administrator will set a claims registration deadline, typically 14 to 30 days from the initial court order. All creditors must submit a formal claim to participate in the creditors' meeting vote and in any subsequent distribution. The claim must state the full amount owed (principal, interest to the arrangement application date, costs), the legal basis (contract, court judgment, guarantee), and attach all supporting documents. Claims denominated in foreign currency are converted to NIS at the Bank of Israel exchange rate on the date of the initial court order. Late or unregistered claims may be excluded from the vote and may receive no distribution.

Step 3: Analyse the arrangement proposal critically

The explanatory statement sent with the meeting notice must include a liquidation analysis: what creditors would receive if the company were wound up immediately. Have your Israeli attorney review it alongside an independent valuation of any Israeli assets you know the company holds. If the arrangement offer is below the liquidation value, you have grounds to challenge. If the offer is fair, or if liquidation would genuinely produce less, vote accordingly.

Step 4: Vote and, if necessary, object at the sanction hearing

Foreign creditors can vote by proxy at the creditors' meeting without attending in person. Submit your vote in writing before the meeting date. If the arrangement passes over your objection and you believe the grounds for challenge are strong, file a formal objection at the sanction hearing. Do not wait until after sanction to appeal. Once an arrangement is sanctioned, overturning it on appeal is very difficult.

Stage Typical Timeline Foreign Creditor Action
Company files Section 350 application Day 0 Retain Israeli counsel; halt separate Execution Office actions
Initial court order + stay issued Days 0–14 Register claim with administrator before claims deadline
Notice of creditors' meeting sent 21+ days before meeting Review explanatory statement; instruct attorney on vote
Creditors' meeting and vote Weeks 4–10 from application Submit proxy vote before meeting; coordinate with other large creditors
Sanction hearing 4–8 weeks after vote File written objection if arrangement terms are unfair
Court sanction order Months 3–6 Appeal within 45 days (very limited grounds); otherwise comply
Arrangement distributions Per plan schedule (months to years) Confirm bank details with administrator for payment transfers
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Frequently Asked Questions

Yes. Once the District Court sanctions a company arrangement under Section 350 of the Companies Law 5759-1999, it binds every member of the creditor class, including those who voted against, abstained, or were absent. A dissenting creditor's only recourse is to file an objection before the court sanctions the arrangement, or to appeal the sanction order within 45 days. An approved arrangement cannot be set aside merely because individual creditors dislike the terms; you need a procedural or substantive ground that the court has not already considered.
Within each creditor class, approval requires a majority in number of creditors who voted and at least 75% in value of the claims voted in that class. Both thresholds must be met simultaneously. A large single creditor holding more than 75% of class value can approve an arrangement unilaterally from a value perspective. Conversely, any creditor or group of creditors collectively holding more than 25% of class value can block the arrangement in that class.
From the first court application to court sanction takes roughly 4 to 9 months in straightforward cases. The initial order appointing the administrator and staying enforcement is issued quickly: within days to two weeks. The creditors' meeting follows 4 to 10 weeks later. After the vote, a sanction hearing adds 4 to 8 more weeks. Complex cases involving multiple creditor classes, contested claims, or regulatory approvals can take 12 to 24 months. Arrangement distributions then occur on the schedule set in the arrangement itself, typically over 12 to 48 months.
Yes. Foreign creditors can vote by written proxy without attending the meeting in person. The arrangement administrator's notice will explain the proxy voting procedure. All arrangement documents are in Hebrew, so retaining an Israeli attorney to review the explanatory statement, assess the proposal, and submit the proxy vote correctly is strongly recommended. A vote submitted in the wrong form or after the meeting may be disregarded.
When the District Court issues its initial order under Section 350, it typically grants an automatic stay on all enforcement proceedings against the company, including Execution Office actions, bank attachments, and pending civil litigation. The stay is in place while the arrangement is being negotiated, voted on, and reviewed by the court. If the arrangement is ultimately approved and sanctioned, the Execution Office file remains suspended for the arrangement's duration. If the arrangement fails or is rejected, creditors may resume their enforcement actions.

Related Guides

Personal Insolvency in Israel: A Guide for Foreign Creditors Winding-Up Petition in Israel: How Creditors Force Company Liquidation Priority of Creditors in Israeli Insolvency: Who Gets Paid First Collecting Debts from Israeli Companies: A Creditor's Guide Asset Freeze Orders in Israel: How Creditors Preserve Recovery
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Adv. Eli Shimony

Licensed Israeli Attorney

Adv. Eli Shimony advises foreign companies and individuals on creditor rights in Israeli company arrangements and insolvency proceedings, from registering claims and coordinating creditor voting strategy through challenging unfair arrangements at the District Court sanction stage.

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