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Insolvency in the shadow of the corona crisis

Following the Corona plague many individuals and business owners find themselves facing a severe economic crisis.

Is the insolvency procedure the only solution, and if so is it, what is the correct conduct in its framework?

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• Insolvency

Adv. Etty Peretz Keinan in collaboration with Zap Mishpati, in collaboration with Zap Mishpati

Wednesday, 27 May 2020, 09:52

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(Photo: ShutterStock)

The economic crisis created by the Corona plague has hit many households in Israel, especially business owners who have run into cash flow difficulties with the significant reduction in their activity, sometimes to the point of complete cessation.

The banks, for their part, turned off the tap, refused to increase credit lines and even reduced them.

On the other hand - rental expenses, payments to suppliers and authorities, etc., are charged as usual.

Thus, the business owners found themselves sucked into a whirlpool of uncertainty, exposed to their creditors and standing helpless in the face of a growing list of debts.

Insolvency procedure - the last resort

This situation has led many to consider applying for insolvency proceedings, but it is recommended that this proceeding be used as a last resort only, only after all the other options have been exhausted.

Among these options are: Applying for rescheduling the debts and establishing an Enforcement Office fees bag or reaching a settlement with creditors - direct negotiations between the debtor to the creditor for the purpose of re-payment plans, debt reduction, freezing of charges or deferral of payments.

Only when it is clear beyond doubt that exhausted All possibilities and in spite of everything there is not and will not be another option, then it is worthwhile to resort to insolvency and economic rehabilitation

proceedings. Repayment that took effect on September 15, 2019.

Duties and protections

By law, the debtor entering the proceeding will have to comply with a payment order (to be determined according to his financial capacity) and to file an income and expense report once every two months.

In addition, he will be ordered to delay leaving the country for the entire procedure, and he will have to undergo a comprehensive financial investigation with the trustee - a lawyer will be appointed for the purpose of conducting the actual procedure.

In return for all this, the debtor will have protections: upon receipt of an order to initiate proceedings all proceedings in the enforcement cases opened against him will be delayed, he will be allowed to open a bank account (credit only), make bank transfers and use debit card for immediate debit and be protected from various operational proceedings.

Important points on the timeline of the procedure

In order to initiate an insolvency proceeding, an application must be submitted, to which the commissioner will be required to respond within 30 days.

Within nine months from the date of receipt of the order, the trustee will submit his recommendation for a rehabilitation order, and within 11 months from that date, the commissioner will also submit his recommendation.

Upon receipt of the recommendations, the debtor will attend a hearing in which the rehabilitation order will be issued, which will determine the amount he will be required to pay and within how long he must do so in order to receive a dismissal order.

Once the dismissal order is issued, the procedure will end, the execution files will be closed and the debtor will be released from his debts.

Special requests

These days, due to the expected load of requests, there may be some delays in the process. Thus, for example, it is possible that the issuance of an order to open the proceedings will be delayed beyond the 30 days defined by law. If legal proceedings are instituted against the debtor at that time, he will be able to file a motion to stay proceedings until the order is obtained.

A business owner who wishes to return to operating his business and conduct himself independently from the moment he receives an order to open proceedings will also be required to submit a special request. In such a case he will have to prove to the court that there is a benefit to the creditors in the continuation of his activity, since this is his livelihood and through it he will be able to pay his debts. Receipt of the application will be conditional on checking the level of risk of the business.

In order to proceed efficiently and achieve the desired results at each stage of the procedure, it is advisable to enlist the help of a lawyer who specializes in the field.

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