Debt Collection

In what order are creditors paid in an Israeli company insolvency?

Q: In what order are creditors paid in an Israeli company insolvency?

Israeli insolvency pays creditors in a fixed statutory order. Under the Insolvency and Economic Rehabilitation Law 5778-2018, secured creditors are paid first from their collateral, followed by the costs of the proceedings, then preferred debts such as limited amounts of employee wages and certain taxes, and finally ordinary unsecured creditors who share whatever remains pro rata. Subordinated and shareholder claims rank last. A foreign unsecured creditor sits in the ordinary unsecured class and often recovers only a fraction of the debt.

      Israeli insolvency pays creditors in a fixed statutory order. Under the Insolvency and Economic Rehabilitation Law 5778-2018, secured creditors are paid first from their collateral, followed by the costs of the proceedings, then preferred debts such as limited amounts of employee wages and certain taxes, and finally ordinary unsecured creditors who share whatever remains pro rata. Subordinated and shareholder claims rank last. A foreign unsecured creditor sits in the ordinary unsecured class and often recovers only a fraction of the debt.
    

The 2018 Insolvency Law replaced the older Companies Ordinance and bankruptcy statutes and codified a single distribution ladder for corporate insolvency. A creditor holding a valid fixed charge or pledge is paid from the proceeds of that specific asset ahead of everyone else. The general estate then covers the office-holder's fees and the costs of the proceedings, after which come the preferred creditors, a limited category that includes employee wage and severance claims up to a ceiling and defined tax debts. Only then do ordinary unsecured creditors share the residue in proportion to their proven claims. Our guide to insolvency of Israeli debtors explains the process.

For a foreign creditor, ranking determines whether filing a proof of debt is worthwhile. Unless you hold registered security over Israeli assets, you are almost always an ordinary unsecured creditor, paid only after secured and preferred claims are satisfied, which frequently leaves cents on the shekel. This is why lenders and suppliers try to obtain a registered pledge, a guarantee or retention of title before extending credit. You must still file a proof of debt within the deadline set by the office-holder to participate at all, and a foreign-currency debt is converted to shekels at the date the proceedings open. Getting security in place before insolvency is far more effective than fighting over priority afterward.

⚖ In Practice

Governing law: Insolvency and Economic Rehabilitation Law 5778-2018
Competent authority: the insolvency courts and the Commissioner for Insolvency Proceedings (Memuneh al Halikhei Chadalut Pera'on)
Order of payment: secured creditors, then proceedings' costs, then preferred debts (capped employee wages and certain taxes), then ordinary unsecured, then subordinated and shareholder claims
Foreign creditor's usual rank: ordinary unsecured, unless holding registered Israeli security
Deadline: file a proof of debt (tviat chov) within the period fixed by the office-holder
Currency: foreign-currency claims are converted to shekels as at the opening of proceedings

From the full guide: Bankruptcy and Insolvency of Israeli Debtors

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In what order are creditors paid in an Israeli company insolvency?

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