Quick Answer: When an Israeli company that owes you money enters insolvency proceedings under the Insolvency and Financial Rehabilitation Law 5778-2018, you become a creditor in either a rehabilitation or liquidation track. In both cases, you must file a formal proof of debt (hotaat chov) with the court-appointed trustee, typically within 45 days of the publication notice in Israel's Official Gazette (Reshumot). Missing that deadline can permanently bar your claim. As a foreign creditor, you rank equally with Israeli creditors in the same class — but secured creditors and employee wage claims take priority over ordinary trade debts.

Foreign creditors get caught out by Israeli insolvencies more often than they should. The notices come in Hebrew, the deadlines are short, and by the time a supplier in Germany or a lender in New York works out what happened to their Israeli debtor, the proof-of-debt window has already closed.

Israel's insolvency framework was completely rebuilt by the Insolvency and Financial Rehabilitation Law 5778-2018 (referred to here as "the 2018 Law"), which came into force in September 2019. The new law replaced decades of patchwork bankruptcy and liquidation rules embedded in the old Companies Ordinance and introduced a coherent, modern framework — one closer in spirit to US Chapter 11 and Chapter 7 than to anything that existed in Israel before. Whether the company went into rehabilitation or straight liquidation matters — the process differs, but the time pressure in both tracks is the same.

1. Israel's Insolvency Framework Under the 2018 Law

Israeli company insolvency proceedings are handled exclusively by the Economic Courts (Batei Mishpat Kalkali'im), which currently sit in Tel Aviv and Haifa. Proceedings open in one of two ways: the company itself files voluntarily, or a creditor owed a minimum of NIS 50,000 in undisputed debt files a petition requesting that the court open proceedings.

Once a petition is filed, the court makes a quick preliminary assessment. If the company shows any prospect of recovery, the court opens rehabilitation proceedings under Part C of the 2018 Law and appoints a trustee (ne'eman). A stay of enforcement takes effect automatically — creditors cannot pursue lawsuits, garnishment orders, or Execution Office proceedings while the stay is in force. The trustee has up to 70 days (extendable by the court) to examine the company's affairs and present either a rehabilitation plan or a recommendation to liquidate.

If no rehabilitation is possible, or if the company's directors file directly for liquidation, the court issues a liquidation order and appoints a liquidator (mefark). The liquidator takes control of all company assets, investigates the conduct of directors and shareholders, and distributes proceeds to creditors in the statutory order of priority.

Both tracks are published in the Official Gazette (Reshumot) — in Hebrew — and in a Hebrew-language newspaper of general circulation. Publication in Reshumot triggers the filing deadline for creditors.

In Practice

A foreign supplier owed NIS 120,000 by an Israeli importer has standing to file its own insolvency petition under Section 3(b) of the 2018 Law — the minimum threshold is NIS 50,000 in undisputed debt. Filing a petition yourself can sometimes function as a collection tactic: faced with the prospect of a public insolvency filing, some debtors pay. But if you actually proceed and the court opens formal insolvency, you lose your direct enforcement rights and must queue up with every other creditor. Think carefully before pulling that trigger.

2. Finding Out Your Israeli Debtor Has Gone Insolvent

The Israeli insolvency notice system was not designed with foreign creditors in mind. All notices are published in Hebrew in Reshumot (available at misrad-hamishpatim.gov.il) and in a Hebrew newspaper. If your contact at the Israeli company stops responding and you don't know why, there is a real chance the company has entered insolvency and the public notice was published weeks ago without reaching you.

The most reliable approach is to monitor actively before you need to:

  • Check the Companies Registrar (Rasham HaChevrot) at misrad-hamishpatim.gov.il — insolvency filings appear in the company's public file and are searchable by company number (mispar chevreh)
  • Set up name alerts using Google Alerts for the company's full Hebrew name alongside terms like "פירוק" (liquidation) or "כינוס" (receivership)
  • Ask your Israeli lawyer to periodically check Reshumot for any mention of the debtor
  • Register as a known creditor proactively — once you know proceedings have opened, contact the trustee in writing, attaching copies of invoices and any acknowledgment of the debt

In Practice

Under Section 216 of the 2018 Law, the trustee must notify known creditors directly when proceedings open. The word "known" does real work here. A trustee who has your invoice or signed contract on file will likely notify you. A foreign supplier whose only contact was a purchasing manager's email will often fall through the cracks. The moment you suspect financial trouble — late payments, unanswered calls, rumors in your industry — have your Israeli attorney send a registered letter to the company formally identifying you as a creditor and providing contact details. That letter establishes your "known" status.

In Practice: Under Section 235 of the Insolvency and Economic Rehabilitation Law 5778-2018, the court-appointed liquidator (mifrak) publishes a bar date notice (moed yoter) in Reshumot (the Israeli Official Gazette) — typically set 45-90 days from the insolvency order. A foreign creditor who files proof of debt after the bar date can be excluded from all distributions, regardless of the validity of the underlying claim. The proof of debt form must be submitted in Hebrew with attached documentation (original invoice, contract, or judgment), authenticated by an apostille if executed abroad, and sent to the liquidator's office by registered mail or courier with proof of delivery. Late filing applications require a court motion under Section 236 that takes 2-4 months to decide and costs NIS 5,000-15,000 in legal fees.

3. Filing Proof of Debt: Deadlines, Format, and Evidence

When the court issues a liquidation order and publishes it in Reshumot, the order itself sets the filing deadline for creditors to submit proofs of debt (hotaot chov) to the liquidator. Read the order: the deadline is stated in it, typically 45 days from the date of publication. Courts have discretion to set a different period. Whatever they set, they enforce.

A proof of debt must include:

  • The creditor's full legal name, address, and contact details
  • The amount claimed in NIS (see Section 5 for currency conversion rules)
  • The legal basis of the claim — contract, invoice, loan agreement, arbitral award, or court judgment
  • Supporting documents: signed contracts, original invoices, delivery confirmations, correspondence in which the debtor acknowledged the debt, prior demand letters
  • For foreign-currency debts: the Bank of Israel representative exchange rate on the date of the insolvency order and your NIS conversion calculation
  • For judgment-based claims: a certified copy of the judgment; if it is a foreign judgment, also submit the Israeli recognition order if you have one

You submit the proof of debt directly to the liquidator, not to the court. The liquidator reviews each claim, may come back asking for more documentation, and then either admits or rejects it. Rejected claims can be appealed to the Economic Court within 30 days.

In Practice

Section 224 of the 2018 Law allows the liquidator to reject a late proof of debt outright, and courts interpret the deadline strictly. "I didn't see the Hebrew notice" is not automatically accepted as reasonable cause if the publication in Reshumot was properly made. Foreign creditors who have argued ignorance of the Hebrew-language notice system have occasionally succeeded — but only where they presented concrete evidence: a foreign address throughout the proceedings, no Israeli bank account, no local representative, and no Hebrew-language correspondence. Courts do not accept the argument unless it is backed up. File on time, every time.

4. Creditor Priority: Where Foreign Trade Creditors Actually Rank

Not all creditors in an Israeli insolvency are equal. The 2018 Law establishes a strict priority order for distributing the estate's proceeds. Each class must be paid in full before anything reaches the next class down. In practice, this means that in a heavily leveraged company, unsecured trade creditors — the class most foreign suppliers fall into — may receive little or nothing.

The distribution order under Sections 236–245 of the 2018 Law runs as follows:

  1. Secured creditors — holders of a fixed charge (shiabud kavu'a) or mortgage registered over specific assets. They are paid from the proceeds of their specific collateral and stand outside the general waterfall entirely, unless the collateral is insufficient to cover the debt
  2. Liquidation costs and expenses — the liquidator's fees, court costs, and ongoing expenses incurred in administering the estate are paid before any creditor receives a penny
  3. Priority employee claims — wage arrears, accrued vacation pay, and notice-period pay are protected up to NIS 24,130 per employee (the cap is updated periodically by the Minister of Justice under Section 243 of the 2018 Law). Claims above that cap drop to the ordinary unsecured class
  4. State creditors — debts to the Israel Tax Authority (ITA) and the National Insurance Institute (NII / Bituach Leumi) have statutory priority under Section 241, ranking above ordinary unsecured claims
  5. Ordinary unsecured creditors (noshim regulaim) — all trade creditors rank here, including foreign suppliers, service providers, and lenders without registered security. Claims are admitted pari passu: each creditor receives the same percentage of their admitted debt
  6. Subordinated and deferred debt — certain shareholder loans and contractually subordinated instruments sit at the bottom

Most foreign trade creditors land at level five. In practice, ordinary unsecured creditors in Israeli liquidations often recover somewhere between five and thirty cents on the dollar — and in heavily bank-financed companies with large payrolls and ITA arrears, the number is closer to zero.

In Practice

Before extending credit to an Israeli company, run a Rasham HaChevrot search to check whether any registered charges (shiabud*im) appear in the company's file. If Bank Hapoalim, Bank Leumi, or a private lender holds a registered floating charge covering the company's entire business, the bank will step ahead of you in every distribution. A single NIS 8 million floating charge held by a lender can consume the entire estate before ordinary creditors see anything. Knowing the charge picture upfront lets you either decline credit or require personal guarantees from directors before you ship.

5. Secured Claims, Floating Charges, and Cross-Border Complications

Israeli law recognises two types of charge: a fixed charge (shiabud kavu'a) attached to a specific, identified asset, and a floating charge (shiabud shot) that covers all present and future assets of the company and crystallises on insolvency. Israeli banks routinely take floating charges over an entire business as a condition of lending.

The 2018 Law introduced a mandatory 25% carve-out from floating-charge proceeds under Section 247. When a company's assets are subject to a floating charge, at least 25% of the net proceeds from realising those assets must be set aside for distribution to ordinary unsecured creditors — regardless of how much the floating-charge holder is owed. This protects trade creditors from being completely wiped out when a bank holds a blanket floating charge.

Foreign lenders frequently discover their security is worthless at exactly the wrong moment. Under Section 183 of the 2018 Law, any charge not registered with Rasham HaChevrot within 21 days of creation is void against the liquidator. A retention-of-title clause or a charge valid under English or German law counts for nothing in Israeli insolvency unless it was registered in the Israeli Companies Register within that window.

Four additional complications apply mainly to foreign creditors:

  • Currency conversion: Debts denominated in USD, EUR, GBP, or any other foreign currency are converted to NIS at the Bank of Israel representative exchange rate published on the date of the insolvency order. You may separately claim exchange-rate losses accrued between the original due date and the insolvency date, but only with proper Bank of Israel rate documentation
  • Foreign court judgments: A judgment from a UK court, US federal court, or other foreign jurisdiction is admissible as evidence of your claim but does not constitute an automatically admitted debt. The liquidator can still investigate the underlying transaction. For stronger protection, apply for formal recognition of the judgment in Israel under the Foreign Judgments Enforcement Law 5718-1958 before or alongside your proof of debt
  • Foreign arbitral awards: An ICC, LCIA, or AAA award must be recognised in Israel under the Recognition and Enforcement of Foreign Arbitral Awards Law 5736-1975 (Israel's implementation of the 1958 New York Convention). Recognition proceedings before the Economic Court take approximately two to four months and cost NIS 5,000–15,000 in court fees
  • Withholding tax on distributions: Distributions to non-resident creditors from an Israeli estate may be subject to Israeli withholding tax at source. The rate depends on the nature of the payment and any applicable double tax treaty. Consult a tax adviser before the distribution stage to avoid losing a portion of your recovery to unexpected withholding

In Practice

A New York-based creditor holding a USD 400,000 ICC arbitral award against an Israeli technology company should apply for Israeli recognition of that award as soon as possible after learning of the insolvency — even if the 45-day proof-of-debt deadline has not yet passed. Once the award is recognised by the Economic Court, the liquidator cannot challenge the merits of the claim, only its admitted quantum. Without recognition, the liquidator has discretion to demand that the creditor re-prove the underlying transaction from scratch, even if an ICC panel already adjudicated it.

In Practice: Under the Insolvency Law 5778-2018, priority creditor distributions (secured creditors and first-priority employees) are made before any payment to ordinary trade creditors. In most Israeli company liquidations, ordinary trade creditors (which is the category most foreign suppliers fall into) recover between 3% and 20% of the proven debt amount, with the recovery percentage determined by the total value of realizable assets divided by total priority claims. The liquidator files distribution reports with the court every 6 months; final distribution typically occurs 18-36 months after the insolvency order. Foreign creditors who hold personal guarantees from the company's directors or shareholders have a separate and potentially more productive enforcement route that operates independently of the corporate insolvency.

6. Distributions, Timeline, and Practical Recovery

After the claims process closes, the liquidator prepares a distribution report for the Economic Court, which approves the scheme and authorises payment. In clean liquidations, a first distribution can happen within twelve to eighteen months of the order. If the estate has real property to sell, director liability proceedings to run, or a large batch of disputed claims to work through, expect three to five years.

The liquidator typically makes one or more interim distributions as assets are realised, with a final distribution once everything is wrapped up. Each distribution is announced in Reshumot and creditors receive direct notification. As a foreign creditor, confirm with the liquidator how they intend to make payment — wire transfer is standard, but the liquidator needs your bank details and may need to verify IBAN and SWIFT codes before processing.

Four things are worth doing proactively:

  • Attend creditors' meetings — Section 91 of the 2018 Law entitles any admitted creditor to attend and vote at creditors' meetings. These meetings determine whether to approve the rehabilitation plan or authorise the liquidator to sell specific assets. Proxy voting is permitted, so an Israeli attorney can vote on your behalf
  • Apply for a seat on the creditors' committee (va'adat ham'anakim) if you hold a substantial claim — committee members receive earlier access to financial information and have formal input into liquidator decisions
  • Monitor for director liability claims — the liquidator has authority to bring claims against former directors and officers for fraudulent trading, preference payments, or breach of fiduciary duty. Successful director liability proceedings increase the estate's value and benefit all unsecured creditors proportionally
  • Check for recoverable preference payments — if the insolvent company made payments to some creditors within 90 days of insolvency (or 12 months for connected parties), those payments can be clawed back into the estate under Section 213 of the 2018 Law. If your company received a payment in that window, you may face a claw-back demand, which will reduce your net recovery

In Practice

If your Israeli debtor made a payment to you within 90 days before the insolvency order — say, a partial payment of NIS 60,000 on a larger balance — the liquidator has the power under Section 213 to demand that money back as a preference payment. This is a real risk foreign creditors overlook. The rationale is that the payment preferred you over other creditors in the run-up to insolvency. To defend against a claw-back claim, you need to show either that the payment was made in the ordinary course of business at ordinary terms, or that you gave equivalent value simultaneously (e.g., you shipped goods on the same day). If you received a large payment from an Israeli company that seemed financially stressed, document the circumstances immediately.