The high interest rate together with the dollar that has soared are making their mark: in the summer months there was a dramatic jump in the number of requests by companies that petitioned the court this year to appoint an official after they ran into debt, as well as a significant increase in requests by individuals (self-employed and households) to enter insolvency proceedings.
Data from the Insolvency Commissioner produced at the request of Israel Hayom show that in the "complex" portfolios of companies (which require the immediate appointment of an official in order to seize assets) there was an increase of about 36% compared between January-August 2023 and these months in 2022. An examination for June-August 2023 versus 2022 shows an 84% jump.
Increase in the rate of requests to initiate insolvency proceedings. Court Illustration, Photo: Gideon Markowitz
Regarding the files of individuals (self-employed and households), an examination of data regarding requests by individuals to enter the insolvency proceedings between January and August 2023 compared to these months in 2022 revealed that there was an increase of 6.7% in the number of requests to open proceedings. An examination of July-August 2023 compared to the same months in 2022 indicates a 12.9% increase in the number of requests to open proceedings.
In the world of corporate insolvency, the law defines two types of cases: simple cases and complex cases. In the simple cases, these are mainly companies that have ended their activities and do not have assets for immediate seizure. On the other hand, in complex cases, companies have a large mass of assets that need to be managed and they go to debt settlement or liquidation/rehabilitation. In complex cases, the court appoints an official or a debt settlement manager on its behalf. For example, Rom Kinneret, which was declared insolvent last week, belongs to the category of complex cases.
It should be noted that looking at all the files of company applications (simple and complex) in January-August 2023, there was a decline of 12.6% in the number of applications submitted (998) compared to the same period last year (1,142).
However, the complex portfolios are more influential on the economy because these are companies with assets to manage and distribute, meaning that many people are affected by the insolvency of a complex corporation. And in these cases, as mentioned, there was a dramatic jump of 84% in the number of applications in June-August 2023 compared to 2022 and a jump of about 36% in January-August 2023, compared to these months in 2022.
"It seems that in light of interest rates and inflation as well as currency rates that have risen throughout the past year, companies that tried to postpone the end and get by as much as possible without reaching the world of insolvency have had to file with the courts." Asher Engelman, Photo: Ofir Abe
The Insolvency and Economic Recovery Commissioner at the Ministry of Justice, Adv. and CPA Asher Engelman, explains the leap: "I don't like to define trends based on short periods, but if I have to estimate only, it seems that in light of interest rates and inflation as well as currency rates that have risen throughout the past year, companies that tried to postpone the end and get by as much as possible without reaching the world of insolvency had to submit applications to the court, so the investment comes a little late. When there is a crisis in the market, it will take several months before it affects and spreads to the companies."
Engelman adds: "We are in an environment of high dollars and euros, imports are more expensive, it usually affects the companies that have operations, that need to import products and raw materials for production, and also need materials for construction."
When asked which industries are most affected by the economic situation and find themselves in financial difficulties, Engelman replies, "We have been hearing recently about quite a few real estate companies, only this week requests were submitted regarding a number of real estate companies, such as Rom Kinneret. It has to do with the fact that there are fewer home purchases, and on the other hand, raw materials have become more expensive."
However, the wave of insolvency has not spared any field, but it is especially starred by real estate companies. These suffer from the unique economic conditions that led to a stagnation in the market, reflected in a sharp decline in the number of transactions.
Raul Serugu, president of the Association of Contractors and Builders of the Land, told Israel Hayom: "In recent months, we have repeatedly warned that the process of raising the interest rate, without government support for the construction and infrastructure industry, has become very dangerous. At this stage, the actual interest rate on bank accompaniment taken by contractors is almost 8 percent, and there is no doubt that if the Bank of Israel continues to raise the interest rate, under existing market conditions, we will see a dramatic expansion of the number of companies in the industry that will reach insolvency. This process is particularly prominent among construction and infrastructure contractors who are completely dependent on their ability to receive financial support for construction and who operate at an already very low profit margin. There are many companies among them that any interest rate increase now could lead them to collapse. At the same time, even entrepreneurial companies that purchased land with crazy leverage are exposed to the impact of interest rates. The Bank of Israel needs to be very cautious; the situation in our industry, which affects every home in Israel, is very volatile."
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