Translation Notice — This is an English translation of a Hebrew law and may contain inaccuracies. In any dispute or legal matter, the original Hebrew text as published in Reshumot (ספר החוקים) is the sole authoritative and legally binding version.

Ordinance

Bankruptcy Ordinance [New Version]

פקודת פשיטת הרגל [נוסח חדש]

Division B: Report, Investigation and Meeting

preamble-1.

State of Affairs

Debtor's Report on

25.

(a)A debtor against whom a receiving Order has been made shall prepare and submit to the Official Receiver a report on the state of his affairs, specifying his assets, debts and liabilities, the names of his creditors, their addresses and occupations, the securities held by his creditors, the dates on which the securities were given, and any other information that has been prescribed or that the Receiver has required.

(b)A report under this Section shall be submitted in the prescribed form, verified by affidavit, and filed within three days of the date of the Order if it was made on the application of the debtor, and within seven days of the date of the Order if it was made on the application of a creditor; the court may, for special reasons, extend the time for its submission.

(c)A debtor who has not complied with the requirements of this Section and had no reasonable justification therefor, may be adjudged bankrupt by the court upon the application of the Official Receiver.

(d)Any person who declares in writing that he is a creditor of a bankrupt may at any reasonable time inspect the report, personally or through an agent, and copy it in whole or in part.

(e)The Official Receiver may exempt the debtor from submitting a report under this Section if he is satisfied that the report submitted by the debtor pursuant to Section 17(a)(3) contains the information necessary for the proper administration of the Bankruptcy.

[1976]

26.

(a)After the making of a receiving Order against a debtor, a general meeting of creditors (in this Ordinance — the first meeting of creditors) shall be held as soon as practicable in order to consider whether a proposal for a composition or scheme of arrangement should be accepted, or whether it is appropriate to adjudge the debtor bankrupt, and what course should be taken with respect to the debtor's assets generally.

(b)The provisions of the First Schedule shall apply to the summoning and proceedings of the first meeting of creditors and of subsequent meetings thereof.

First

Meeting of Creditors

27.

A court that has made a receiving Order shall, unless otherwise provided in this Ordinance, hold a public sitting for the examination of the debtor on a day to be fixed, and the debtor shall appear at such sitting and be examined as to his conduct, his business and his assets.

15(1)]]

Public Examination

28.

The examination shall take place, as soon as it is convenient to hold it, after the expiry of the time for submission of the debtor's report on the state of his affairs; the court may adjourn the continuation of an examination.

Time of Examination

29.

(a)Any creditor who has submitted a proof of debt, or his duly authorised representative, may at the examination question the debtor concerning his affairs and the causes of his failure.

(b)The Official Receiver shall take part in the examination of the debtor, and with the special leave of the court, an advocate may represent him for that purpose.

(c)A trustee appointed before the conclusion of the examination may take part therein.

(d)The court may put to the debtor such questions as it sees fit.

at the Examination

Participants

30.

(a)The debtor shall be examined on oath and is required to answer every question put by the court or put with its permission.

(b)The proceedings of the examination shall be recorded to such extent as the court sees fit, read over to the debtor or read by the debtor himself, and signed by the debtor; the record shall be open for inspection by any creditor at reasonable times, and unless otherwise provided in this Ordinance with respect to that matter, may be used as evidence against the debtor.

Procedure at Examination

31.

(Repealed)

Conclusion of Examination

32.

Where the debtor is of unsound mind, or is suffering from mental or physical infirmity or disability which, in the opinion of the court, deprives him of capacity to attend the public examination, the court may by Order dispense therewith or direct that he be examined under such conditions, in such manner and at such place as appear to the court to be appropriate.

644 Book of Laws 34 28 Elul 5740 09.09.1980

Debtor's Proposal

161(1)]

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Division C: Compromise or Arrangement

33.

A debtor who wishes to propose a composition in satisfaction of his debts or a scheme of arrangement of his affairs shall submit to the Official Receiver, within four days after submitting his report on the state of his affairs or within such later time as the Receiver may fix, a written proposal signed by him containing the terms of the composition or scheme of arrangement which he wishes to lay before his creditors and particulars of the securities or guarantors he proposes.

in the Proposal

Meeting for Consideration

34.

(a)The Official Receiver shall send to every creditor a copy of the debtor's proposal and a report thereon, and shall thereafter, and before the conclusion of the debtor's public examination, convene a meeting of creditors, and if at such meeting a majority in number and three-quarters in value of all claimants resolve to accept the proposal, it shall be deemed to have been duly accepted by all the creditors, and upon confirmation by the court — shall be binding upon all of them.

(b)The debtor may at the meeting amend the terms of his proposal if in the opinion of the Official Receiver the amendment is likely to benefit the creditors generally.

(c)Any creditor who has proved his debt may agree to or oppose the proposal in writing, in the prescribed form, to be sent to the Official Receiver so as to reach him not later than one day before the meeting, and such agreement or opposition shall have the same effect as a vote by a creditor present at the meeting.

(d)A creditor's consent to a composition or scheme of arrangement shall not release any person who, under this Ordinance, would not have been released by a discharge Order had the debtor been adjudged bankrupt.

in Court

(19)]]

Confirmation of Proposal

35.

(a)A proposal accepted at a meeting of creditors may be submitted by the debtor or the Official Receiver to the court for confirmation, and notice of the time fixed for the hearing of the application shall be given to every creditor who has proved his debt; the application shall not be heard until after the conclusion of the debtor's public examination.

(b)Every creditor who has proved his debt is entitled to have his objection to the application heard in court, even if at the meeting of creditors he voted in favour of accepting the proposal.

(c)For the purpose of confirming a composition or scheme of arrangement of joint debtors, the court may, on the recommendation of the Official Receiver, dispense with the public examination of any one of them who is prevented from attending the examination by reason of illness or absence from Israel.

(d)The court shall not confirm a composition or scheme of arrangement that does not provide for the prior payment of all debts entitled to priority in the distribution of a bankrupt's assets.

(e)Before confirming the proposal the court shall hear a report from the Official Receiver on the contents of the proposal and on the conduct of the debtor, and shall hear any objection raised by a creditor or his representative.

(f)If the court is of the opinion that the contents of the proposal are not reasonable or are not likely to benefit the general body of creditors, or is of the opinion that had the debtor been adjudged bankrupt the court would have been required to refuse him a discharge, it shall refuse to confirm the proposal.

(g)Where facts are proved on the basis of which, had the debtor been adjudged bankrupt, the court would have been required to refuse him a discharge, or to suspend his discharge or make it conditional, the court shall refuse to confirm the proposal, unless it provides reasonable security that 25% of every unsecured debt provable against the debtor's assets at the time the proposal was brought for confirmation by the court will be paid immediately or in the near future.

(h)In any other case the court may confirm or refuse to confirm the proposal.

(i)Confirmation of the proposal by the court shall be effected by affixing the seal of the court to the document containing the text of the composition or scheme of arrangement, or the text shall be incorporated in the court's Order.

(j)A composition or scheme of arrangement accepted and confirmed as provided in this Section shall be binding upon all creditors in respect of every provable debt due to them from the debtor, but shall not release the debtor from liability under a Judgment against him in an action for maintenance.

(k)A certificate of the Official Receiver attesting that a composition or scheme of arrangement has been duly accepted and confirmed shall, in the absence of fraud, be conclusive evidence of its validity.

36.

Upon the application of any interested person, the court may enforce the provisions of a composition or scheme of arrangement made under this Part.

Enforcement

37.

(a)If any amount due under a composition or scheme of arrangement has not been paid at the time appointed, or if the court is satisfied on sufficient evidence that, by reason of legal difficulties or any other sufficient cause, the composition or scheme of arrangement cannot be continued without injustice or undue delay to the creditors or to the debtor, or that its confirmation was obtained by fraud, the court may, upon the application of the Official Receiver, the trustee, or any creditor, adjudge the debtor bankrupt and annul the composition or scheme of arrangement, without prejudice to the validity of any sale, transfer, payment or other act done in good faith pursuant to the composition or scheme of arrangement.

(b)Where the debtor is adjudged bankrupt under this Section, every debt created before the adjudication shall be provable in the Bankruptcy if it is provable in other respects.

Cancellation

38.

Where a trustee has been appointed under a composition or scheme of arrangement to administer the debtor's assets or business or to distribute them pursuant to the composition, the provisions of Sections 59 and 60 and of Chapter 10 shall apply as if he were a trustee in Bankruptcy, and as if the expressions "Bankruptcy", "bankrupt" and "adjudication" included, as the case may be, a composition and scheme of arrangement, a debtor under a composition or scheme of arrangement, and an Order confirming a composition or scheme of arrangement.

Trustee

Application in respect of

39.

The provisions of Chapter 3 shall apply to a composition and a scheme of arrangement, to the extent that the nature of the matter and the contents of the documents permit, and the expressions "trustee", "Bankruptcy", "bankrupt" and "adjudication" shall be construed as provided in Section 38.

in Composition or Scheme of Arrangement

161(18)]]

Administration of Assets

40.

A composition or scheme of arrangement confirmed pursuant to the provisions of this Part shall not be deemed to apply to assets acquired by the debtor after the day on which the court confirmed them, unless they contain an express provision that they shall so apply.

and Scheme of Arrangement

Scope of Compromise

41.

A compromise or arrangement, even if agreed upon and approved, shall not be binding upon a creditor who did not consent thereto with respect to any debt or liability from which, under this Ordinance, the debtor would not have been discharged by a discharge Order in Bankruptcy.

Limitation on the Validity of a Compromise and Arrangement

Chapter D': Declaration of Bankruptcy

42.

Where a Receiving Order has been made against a debtor and the creditors have resolved by ordinary resolution at the first meeting of creditors or at any adjournment thereof that the debtor be adjudicated bankrupt, or where no resolution has been passed or no meeting has been convened, or where a compromise or arrangement has not been approved pursuant to this Ordinance within fourteen days after the conclusion of the debtor's public examination or within such other period as the court has permitted, the court shall by Order adjudicate the debtor bankrupt, and upon doing so the property of the bankrupt shall be divisible among his creditors and shall vest in the Trustee.

Bankruptcy

646 Book of Laws 34 28 Elul 5740 09.09.1980

Publication

43. Notice of the declaration of bankruptcy shall be published in the Official Gazette and in a newspaper in the manner prescribed; the notice shall state the name, address and occupation of the bankrupt, the court making the declaration and the date of the declaration, and the declaration shall take effect from the date of the Order.

On Behalf of the Creditors

Appointment of Trustee

44.

(a)Upon a debtor being adjudicated bankrupt, or upon the creditors resolving that he be so adjudicated, the creditors may by ordinary resolution appoint a fit person, whether from among themselves or otherwise, to be Trustee of the property of the bankrupt, and they may by such resolution leave the appointment to the committee of inspection referred to below.

(b)Where the debtor is adjudicated bankrupt after the first meeting of creditors has been held and no Trustee has been appointed prior to the declaration, the Official Receiver shall forthwith convene a meeting of creditors for the purpose of appointing a Trustee.

(c)A person who has been removed from being a Trustee of the property of a bankrupt by reason of misconduct or negligence shall be regarded as a person unfit to be a Trustee.

(d)The creditors may appoint more than one person to be Trustee, and if they do so they shall determine whether any act required or permitted to be done shall be done by all the Trustees or by one or more of them; however, for the purposes of this Ordinance they shall all be called "Trustee" and shall hold the property of the bankrupt jointly.

(e)The creditors may also appoint persons to act as Trustees in succession, whenever the person preceding his colleague on the list refuses to accept the appointment or fails to give security, or where the Official Receiver does not approve his appointment.

Security and Confirmation

45.

(a)Persons appointed as Trustees shall give security, in the prescribed manner, to the satisfaction of the Official Receiver, and upon doing so the Official Receiver shall confirm that their appointment has been duly made, and the appointment shall take effect from the date of confirmation.

(b)The Official Receiver shall not grant such confirmation if he objects to the appointment on any of the following grounds:

(1)the appointment was not made in good faith by a majority in value of the creditors voting;

(2)the person appointed is unfit to be a Trustee;

(3)the connection or relationship of the person appointed to the bankrupt, his property, or a particular creditor makes it difficult for that person to act impartially for the benefit of the creditors as a whole.

(c)Upon the application of a majority in value of the creditors, the Official Receiver shall notify the court of his objection, and the court shall determine the validity of the objection.

The Court

Appointment of Trustee by

46.

(a)Where the creditors have not appointed a Trustee within four weeks from the date of the declaration, or where at the expiration of those four weeks negotiations regarding a compromise or arrangement were pending, the Official Receiver shall notify the court thereof within seven days after the conclusion of the negotiations, whether by reason of the creditors' refusal to accept the compromise or arrangement or by reason of the court's refusal to approve them, and the court shall appoint a fit person to be Trustee of the property of the bankrupt.

(b)The creditors, or the committee of inspection if authorized to do so by a resolution of the creditors, may thereafter nominate a Trustee and apply to the court to appoint him, and upon confirmation of his appointment he shall replace the person appointed by the court.

As Trustee

The Official Receiver

47.

(a)Where no Trustee has been appointed by any of the means referred to in this Chapter, the Official Receiver shall be the Trustee.

(b)The Official Receiver shall not serve as Trustee of the property of a bankrupt except as provided in this Ordinance.

647 Book of Laws 34 28 Elul 5740 09.09.1980

Committee of Inspection

48.

(a)The creditors entitled to vote may, by resolution at their first meeting or at any subsequent meeting, appoint a committee of inspection for the purpose of supervising the administration of the property of the bankrupt by the Trustee.

(b)The committee of inspection shall consist of not fewer than three members and not more than five, and each member shall be a creditor, or a person whom a creditor has appointed or intended to appoint as his proxy or agent for voting, provided that no person shall be competent to act as a member of the committee of inspection unless the document of authority or proxy for voting is in his possession and after the proof of debt of the creditor has been filed and found provable.

Inspection

201(1), (2)]]

Appointment of Committee

49.

(a)The committee of inspection shall meet at such times as it shall appoint, and if it has not so appointed — at least once a month; and in addition, the Trustee and any member of the committee may convene a meeting of the committee as they shall deem necessary.

(b)The committee may act by a majority of its members present at a meeting, but it shall not act unless a majority of its members are present at the meeting.

Committee of Inspection

201(3), (4)]]

Procedures of the Committee

50.

(a)Any member of the committee of inspection may resign therefrom by delivering to the Trustee a written notice signed by him.

(b)A member of the committee who becomes bankrupt, or who enters into a compromise or arrangement with his creditors, or who is absent from five consecutive meetings of the committee, shall vacate his office.

(c)A member of the committee may be removed from office by ordinary resolution at a meeting of creditors of which seven days' prior notice has been given stating the purpose of the meeting.

(d)Where a member's office becomes vacant, the Trustee shall forthwith convene a meeting of creditors to fill the vacancy, and the meeting may by resolution appoint another creditor or other person qualified to serve as provided in Section 48(b).

(e)The continuing members of the committee, if they number at least two, may act notwithstanding that a vacancy has arisen in its composition; and if there are fewer than five, the creditors may add to their number, provided that there shall not be more than five.

Cessation of Membership

51.

In the absence of a committee of inspection, the Official Receiver may, upon the application of the Trustee, do any act and give any direction or permission which the committee of inspection is permitted or required to do or give under this Ordinance.

In the Absence of a Committee

52.

Upon the debtor being adjudicated bankrupt, the creditors may at any time resolve, by a majority in number and three-quarters in value of all claimants, to accept a proposal for a compromise in satisfaction of the debts due to them in the bankruptcy or a proposal for an arrangement in relation to the affairs of the bankrupt, and upon doing so the proceedings and their consequences shall be the same as in the case of a compromise or arrangement prior to the declaration of bankruptcy.

After Declaration

Compromise or Arrangement

53.

(a)Where the court has approved the compromise or arrangement, it may make an Order annulling the bankruptcy and vesting the property of the bankrupt in him or in such other person as the court may appoint, and it may impose such conditions on the vesting as it thinks fit.

(b)Where the court has made an Order under this Section without directing the vesting of the debtor's property, his property shall revert to being his own immediately after all amounts due under the compromise have been paid.

The Court

211(2)]]

Approval by the Court

54.

(a)Where any payment due under a compromise or arrangement has not been paid on time, or where the court is of the opinion that the compromise or arrangement cannot continue without causing injustice or unreasonable delay, or where its approval was obtained by fraud, the court may, on the application of any interested person, adjudicate the debtor bankrupt

648 Book of Laws 34 28 Elul 5740 09.09.1980

and annul the compromise or arrangement, without thereby affecting any sale, transfer, payment or other act done in good faith pursuant to the compromise or arrangement.

(b)Where the debtor is adjudicated bankrupt pursuant to this Section, any debt created prior to the date of the declaration shall be provable in the bankruptcy if it is otherwise provable.

Declaration

Power to Annul

55.

(a)Where the court is satisfied that a debtor ought not to have been adjudicated bankrupt, or where it is proved to its satisfaction that the debts of the bankrupt have been paid in full, it may by Order, on the application of any interested person, annul the declaration, and the annulment shall be published forthwith in the Official Gazette and in a newspaper.

(b)The court may also annul the declaration where in its opinion the continuation of the administration of the bankruptcy would not be beneficial to the creditors; however, the annulment of the declaration on this ground shall not remove from the bankrupt any legal disqualification arising from the declaration, unless the court has resolved to remove such disqualification.

(c)For the purposes of this Section —

(1)a waiver, conditional or unconditional, of a debt proved in the bankruptcy shall not be regarded as full payment of the debt;

(2)a disputed debt shall be regarded as having been paid in full if the debtor has given an undertaking, in such amount and with such security as the court has approved, to pay the amount to be adjudged in proceedings for payment of or relating to the debt, together with the costs of such proceedings;

(3)a debt due to a creditor who cannot be found or identified shall be regarded as paid if it has been paid in full into the court's treasury.

(d)The annulment of a declaration of bankruptcy shall not affect the validity of any sale, transfer or payment made in good faith, or of any act done for such purpose, by the Official Receiver, the Trustee or any other person acting under their authority, or by the court; however, the property of the debtor shall vest in such person as the court may appoint, and if no such person is appointed it shall revert to being the debtor's property to the extent of his right or interest therein, subject to such conditions as the court may think fit to prescribe by Order.

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