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Can a majority of creditors force a dissenting creditor to accept a debt arrangement in Israel?

Yes, within limits. Section 350 of the Companies Law 5759-1999 lets a court sanction a compromise or arrangement between a company and its creditors once each class has approved it by a majority in number of those voting who together hold at least 75 percent of the debt value represented. Once the court confirms the arrangement it binds every creditor in that class, including one who voted against it or did not vote at all. A parallel route exists for insolvent debtors under the Insolvency and Economic Rehabilitation Law 5778-2018. A dissenting creditor’s real protection is the sanction hearing, where it can argue that the classes were drawn wrongly or the terms are unfair.

The mechanism divides creditors into classes with similar rights, so secured lenders, preferential claimants and unsecured trade suppliers normally vote separately, and a foreign supplier sits with the general unsecured class. The company or a creditor applies to the court, the court orders class meetings, and a court-appointed officer verifies the claims and counts the vote by both head count and value. Approval by itself is not enough. The court must then sanction the arrangement, and at that stage it examines whether creditors had adequate information, whether the classes were properly composed, and whether the outcome beats what a liquidation would deliver.

For a foreign creditor the danger is procedural rather than legal. Meeting notices are published in Hebrew and sent to the address held in the company’s records, so an overseas supplier often hears about the vote late and finds its claim admitted at a figure it never agreed to. File a proof of debt early with the underlying invoices and contract attached, appoint an Israeli address for service, and ask the appointed officer in writing to confirm the class allocation before the meeting. If the arrangement has already been approved, an objection at the sanction hearing is the last opening, and it must rest on evidence rather than on dissatisfaction with the dividend.

⚖ In Practice
  • Governing law: Section 350, Companies Law 5759-1999; Insolvency and Economic Rehabilitation Law 5778-2018 for insolvent debtors
  • Voting threshold: a majority in number of those voting in each class, holding at least 75 percent of the value represented in that vote
  • Competent authority: District Court (Beit Mishpat Mehozi) in its economic and insolvency jurisdiction; the Official Receiver (Kones Nechasim Rishmi) supervises insolvency files
  • Foreign creditor documents: proof of debt with invoices and contract, a Hebrew translation, and an Israeli address for service
  • Timeline: six to eighteen months from application to a sanctioned arrangement, longer where class composition is disputed
  • Effect of sanction: binds every creditor in the class, dissenters included, and generally bars separate collection of the covered debt

From the full guide: Israeli Company Insolvency: A Complete Guide for Foreign Creditors

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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