Amendment to the law: Freezing proceedings for businesses affected by the corona without declaring insolvency - Walla! Business

2021-03-09T11:52:34.986Z

Interpretation to amend the Insolvency Law Business Amendment to the law: Freezing proceedings for businesses affected by the corona without declaring insolvencies Next week, the amendment to the Insolvency Law, which allows corporations to go to court and request a stay of proceedings without becoming insolvent, will enter into force. The amendment to the law is intended to help businesses that got into a crisis, almost overnight, follow

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Amendment to the law: Freezing proceedings for businesses affected by the corona without declaring insolvencies

Next week, the amendment to the Insolvency Law, which allows corporations to go to court and request a stay of proceedings without becoming insolvent, will enter into force.

The amendment to the law is intended to help businesses that got into a crisis, almost overnight, following the corona plague.

The law offers relief not only to businesses in crisis but also to creditors

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Increasing the chance of economic rehabilitation

Upon granting a stay of proceedings, the corporation will not be entitled to pay its past debts (debts incurred prior to filing the application), the legal proceedings and collection proceedings against it will be frozen and the foreclosures imposed on its assets will be canceled.

The amendment is intended to enable corporations that have run into difficulties as a result of the corona crisis, and are unable to repay their debts on time, to take a non-insolvency procedure, and to address the difficulties encountered in an organized and relatively quiet manner.

The assumption underlying the amendment is that at least in some cases corporations have run into only temporary economic distress due to the crisis, which can be resolved when the cloud of uncertainty about the return of the economy to regular activity dissipates.

Therefore, in view of both the good of the company, on the one hand, and the good of the creditors, on the other, the legislature rightly believes that providing an interim solution to these corporations that will allow them to avoid insolvency proceedings will increase their chances of recovery and maximize debt repayment to creditors.

Protection of creditors as well

Despite the criticism leveled against certain provisions in the amendment, its part is justified, the amendment is correct and important.

It is estimated that many corporations encountered difficulties following the crisis, and until the amendment were forced to choose between two problematic alternatives - that of insolvency proceedings, which include obtaining protection from creditors but also appointing an external trustee to remove management powers from the existing management, or a softer procedure. Debt, without receiving protection from creditors - will prefer this new route.

Due to the need to protect the corporation's creditors from improper actions during the period of delay in proceedings, the amendment stipulates, inter alia, that upon granting a stay of proceedings, a settlement manager (attorney or accountant) will be appointed, in accordance with the statutory procedure for appointing a trustee. From a list of trustees to be formulated by the Commissioner of Insolvency and Economic Rehabilitation Proceedings).

The arrangement manager will work to ensure the proper management of the procedure and the preservation of the corporation's assets, and will assist the corporation and its creditors to negotiate a debt settlement.

In order to fulfill his role, the director of the arrangement will be given relatively broad powers, such as the right to participate in the corporation's board meetings, receive information from the corporation regarding certain activities, receive a report from the corporation on its monthly income and expenses.

Part of a recovery plan

The obligation to appoint an administrator under the amendment (an obligation that does not exist in the wording of the law today), the manner in which he will be appointed and the relatively broad powers granted to him, to some extent undermine the benefits inherent in this outline, and likely concern loss of control or over-intervention by an outsider Significant among corporations, on the question of whether to take a procedure to delay proceedings.

In this matter, it is to be regretted that the legislature did not take another step, nor did it leave to the discretion of the court the need to appoint a neutral order director and define his powers.

As an attorney who currently accompanies many corporations operating in an insolvency environment and who are at a critical crossroads regarding their future, the amendment that will take effect in a few days may well be an immediate solution for them to formulate a debt settlement as part of a recovery plan.

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Source: walla

All business articles on 2021-03-09