What Happens to Israeli Arbitration When the Respondent Enters Insolvency Proceedings?

The Insolvency and Economic Rehabilitation Law 5778-2018 (*Chok HaChadlut VeShiqqum Kalkali*) replaced the decades-old Bankruptcy Ordinance and the Companies Ordinance provisions on winding-up, creating a unified insolvency framework. Section 65 of the Law provides that upon the issuance of a stay order or the commencement of liquidation, all proceedings against the debtor are automatically stayed without need for a separate court order. The term "proceedings" is interpreted broadly by Israeli courts to encompass judicial and quasi-judicial processes, including arbitration. An arbitrator who continues to conduct proceedings after being notified of the insolvency may render an award that cannot be enforced against estate assets. The trustee (*kanim*) appointed by the court under Section 57 of the Law steps into the shoes of the debtor and assumes control of all ongoing contractual and legal relationships, including arbitration agreements. For context on how Israeli arbitration typically proceeds before insolvency intervenes, see the guide to the Israeli arbitration process.

The practical effect for a claimant mid-arbitration is that proceedings freeze and the forum shifts. The claimant must file a proof-of-debt claim (*tvi'at chov*) with the trustee, attaching all supporting documentation, within the claims bar date published in the official registry and typically notified to known creditors. Courts generally set this period at 30 to 90 days from the publication of insolvency, and late claims may be admitted at the court's discretion but risk receiving reduced priority. The trustee then reviews the claim and either admits it, rejects it, or negotiates a compromise. If the trustee elects to continue the arbitration — for example, because a pending claim may benefit the estate — the arbitration resumes with the trustee as the party. Where the trustee elects to terminate, the claimant's rights crystallise as an admitted proof of debt and are ranked according to the statutory priority scheme in Section 240 of the Law. Foreign claimants face no special disadvantage in this process, though they should monitor Israeli insolvency publications promptly to avoid missing the bar date.

For a full explanation of how Israeli arbitration is structured, commenced, and resolved under the Arbitration Law 5728-1968, see the Israeli arbitration process guide.

Prepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy