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]

Chapter C: Administration of Assets

Division A: Proof of Debts

preamble-4.

301(3)]]

Debts Provable in Bankruptcy

71.

Debts and liabilities, present or future, certain or contingent, to which the debtor is subject on the date of the receiving Order, or to which he may become subject before his discharge by reason of an obligation incurred before the making of the Order, shall be debts provable in Bankruptcy.

301(1), (2)]

[5736]

72.

Notwithstanding the provisions of Section 71 —

(1)claims for unliquidated damages not arising under a Contract or promise, and claims for maintenance due under a Judgment whose time of payment falls after the making of the receiving Order, are not provable in Bankruptcy;

(2)a person who knew of an act which could have been used as grounds for presenting a Bankruptcy petition against the debtor on the day on which the petition was presented pursuant to which he was adjudged bankrupt, shall not be entitled

653 Book of Laws 34 28 Elul 5740 09.09.1980

to prove by virtue of the receiving Order for any debt or liability to which the debtor became subject after the day on which that act came to his knowledge.

73.

(a)A debt or liability which is provable but whose value is not ascertained, whether by reason of its being contingent or for any other reason, shall be assessed by the Trustee, and any person aggrieved by the assessment may Appeal to the court.

(b)Where the court is of the opinion that a debt or liability is not capable of fair estimation, it may so determine, and upon doing so such debt or liability shall no longer be provable for the purposes of this Ordinance.

(c)Where the court is of the opinion that a debt or liability is capable of fair estimation, it may direct that its value be assessed before the court and give such directions as are necessary in that regard, and the amount so determined shall be a provable debt.

301(4)-(7)]]

Assessment

74.

(a)Where there have been mutual credits, mutual debts or other mutual dealings between a debtor against whom a receiving Order has been made and any person proving or claiming to prove a debt under the Order, an account shall be taken of what is due from each party to the other in respect thereof; the sum due from one party shall be set off against the sum due from the other party, and only the balance of the account, and no more, shall be provable or payable, as the case may be; the provisions of this Section shall not entitle any person to a set-off against the assets of the debtor if, at the time he gave credit to the debtor, he knew that the debtor had committed an act which could have been used as grounds for presenting a Bankruptcy petition against the debtor on the day on which the petition was presented pursuant to which he was adjudged bankrupt.

(b)The determination of which dealings are capable of set-off under this Section shall be made according to their state on the day on which the receiving Order was made.

and set-off

Mutual Credit

75.

The provisions of the Second Schedule shall apply to the manner of proving debts, to the right of proof of secured and other creditors, to the admission and rejection of proofs, and to other matters dealt with therein.

debt

Manner of Proving

76.

Debts proved under this Ordinance shall be paid, subject to its provisions, pari passu according to their amounts and without any preference.

debts

Equality of Payment

77.

The costs of administration of a bankrupt's estate, including court fees, shall constitute a first charge on the assets, and if not actually paid before any debt a sufficient sum shall be retained for their payment out of the assets available for distribution; subject thereto, the debts listed in the next following Section shall be paid without delay, as and when the debtor's assets are sufficient to pay them.

Priority Expenses

78.

The debts listed below shall, in the distribution of the assets of a bankrupt, have priority over all other debts in the following order of preference:

(1)(a) wages within the meaning of the Wage Protection Law, 5718-1958, due to an employee in respect of the period before the filing of the Bankruptcy petition, provided that the total wages entitled to priority shall not exceed 2,820 shekels;

Priority

(b)if, after the commencement of a financial year, a cost-of-living adjustment is applied, the amount specified in sub-paragraph (a) shall be increased by the rate of adjustment from the date of commencement of the adjustment; such increase shall remain in force until the following 31 March;

for this purpose, "adjustment" and "rate of adjustment" have the meaning assigned to them in the National Insurance Law [Consolidated Version], 5728-1968 (hereinafter — the Insurance Law);

4 S.H. 5718, p. 86.

5 O.G. 5740, p. 2194.

6 S.H. 5725, p. 108; 5733, p. 126; 5739, p. 118.

654 Book of Laws 34 28 Elul 5740 09.09.1980

(c)the amount specified in sub-paragraph (a) shall be varied each year on 1 April in accordance with the rate of fluctuation of the average wage within the meaning of the Insurance Law;

(d)the Minister of Labour and Welfare shall publish in the Official Gazette a notice of the changes in the amount specified in sub-paragraph (a) that shall apply by virtue of sub-paragraphs (b) and (c), rounded to the nearest ten shekels;

(2)any sum which the bankrupt has deducted at source from wages pursuant to the Income Tax Ordinance and has not paid to the Assessing Officer;

(3)the debts listed below, which shall rank equally with one another and shall be paid in full, and if the bankrupt's assets are insufficient for full payment to all of them the payments shall be reduced pari passu:

(a)obligatory payments due from the bankrupt on the day the receiving Order was made and for which he became liable, or whose time of payment fell due, within the 12 months preceding that day; "obligatory payments" for this purpose means municipal taxes, taxes of local councils and contributions in the nature of taxes imposed under the Religious Communities (Organisation) Ordinance;

(b)taxes payable to the State Treasury that were assessed and levied on the bankrupt up to the last 31 March preceding the date of the receiving Order and the total of which does not exceed one year's assessment, and other taxes payable to the State Treasury for which the bankrupt became liable, or whose time of payment fell due, during the 12 months preceding that day;

(c)rent for not more than one year prior to the date of the adjudication Order, due to a landlord in respect of premises and land rented by the bankrupt;

(d)any monies due in respect of arrears in compliance with maintenance Orders made or enforced by a competent court.

Insolvency

Status of a Deceased Person

79.

A person who dies while insolvent shall be subject to the provisions of Sections 76 to 82 as if he were a bankrupt; and for this purpose, the date of his death shall replace the date of the making of the Receiving Order.

Bankrupts

Status of Partners

80.

(a)The joint property of partners shall be applied first in payment of their joint debts, and the separate property of each partner shall be applied first in payment of his separate debts.

(b)If there is a surplus of separate property, it shall be treated as if it were part of the joint property; if there is a surplus of joint property, it shall be treated as if it were part of the property of each partner in proportion to his right and interest in the joint property.

(c)Where there is no joint property and there is no solvent partner who can be sued, the creditors of the joint property may claim against the property of each separate partner and receive dividends therefrom on equal terms with any creditor of the separate property; however, if the liability of a partner is limited, the provisions of this Section shall not extend his liability to pay the debts of the Partnership out of his separate property.

Surplus — Interest and Linkage Differentials

81.

A surplus remaining after payment of all debts shall be applied to the payment of interest at the rate prescribed for this purpose under the Interest Law (Change of Rates), 5733-1972 9, or linkage differentials, or linkage differentials and interest as defined in the Adjudication of Interest and Linkage Law, 5721-1961 10, as the trustee shall determine, from the date of the making of the Receiving Order, on all debts proved in the Bankruptcy.

7 Laws of the State of Israel, New Version 6, p. 120.

6 Laws of Palestine, Vol. II, Chapter CXXVI, p. 1267.

9 S.H. 5733, p. 12.

655 Book of Laws 34 28 Elul 5740 09.09.1980

10 S.H. 5721, p. 192; 5739, p. 28.

Preservation of Laws

82.

The provisions of Sections 76 to 81 shall not derogate from the provisions of any law relating to companies or cooperative societies.

331(9)]]

Preservation of Laws

83.

(a)Where a married woman has been adjudicated bankrupt, any money lent to her by her husband and any property deposited with her by him for the purpose of her business shall not entitle the husband to claim a dividend as a creditor in respect thereof until the claims of her other creditors for valuable consideration given in money or money's worth have been satisfied.

(b)Where a woman's husband has been adjudicated bankrupt, any money lent by her to him and any property deposited by her with him for the purpose of a business carried on by him, or otherwise, shall be deemed to be his property, and she shall not be entitled to claim a dividend as a creditor in respect thereof until the claims of his other creditors for valuable consideration given in money or money's worth have been satisfied.

Restriction on Claims of Spouses

341]

Chapter B: Property Available for Payment of Debts

84.

(a)The Bankruptcy of a debtor, whether on his own petition or on the petition of a creditor or creditors, shall be deemed to have relation back to and to have commenced at the time of the act of Bankruptcy being committed on account of which a Receiving Order is made against the debtor.

(b)Where the debtor has committed several acts of Bankruptcy, the relation back and commencement shall be deemed to be at the time of the first act committed within the three months preceding the date on which the Bankruptcy petition was filed.

(c)The fact that an act of Bankruptcy was committed prior to the debt of the petitioning creditor shall not invalidate the Bankruptcy petition, the Receiving Order, or the adjudication.

Bankruptcy

(35)]

Commencement of Bankruptcy

85.

The property of a bankrupt shall comprise, subject to the provisions of Section 86 —

(1)all property belonging to or vested in the bankrupt at the commencement of the Bankruptcy, and all property acquired by or devolving on him before his discharge;

(2)the power to exercise, and to take proceedings for exercising, any right in respect of property in such manner as the bankrupt could have exercised for his own benefit at the commencement of his Bankruptcy or before his discharge;

(3)goods held by the bankrupt at the commencement of the Bankruptcy in his possession or under his control for the purposes of his trade, with the consent and permission of the true owner and in circumstances which made the bankrupt appear to be the owner of the goods; however, a claim that is not a debt due or becoming due to the bankrupt in the course of his trade shall not be treated as goods for the purposes of this Section.

Divisible Property

86.

The property of a bankrupt shall not comprise —

(1)property held by the bankrupt on Trust;

(2)clothing, bedding, bed linen, and cooking utensils necessary for the debtor and his family, books, tools of trade, instruments and receptacles necessary for the science, art, craft, or trade of the debtor, the total value of which does not exceed two shekels;

Divisible Property

10 S.H. 5721, p. 192; 5739, p. 28.

656 Book of Laws 34 28 Elul 5740 09.09.1980

(3)if the bankrupt is a farmer:

(a)three months' subsistence for himself and all persons dependent upon or wholly maintained by him, and seeds sufficient for sowing the area of land which he ordinarily cultivates;

(b)a yoke of oxen, mules, or asses, at the option of the bankrupt, and fodder for them for three months;

(c)land to such extent as the Court considers necessary for the maintenance of the bankrupt and all persons dependent upon or wholly maintained by him.

Adv.

Status of Attorney's Fees

87.

(a)Money paid in good faith by a debtor to his attorney on account of legal costs in contesting Bankruptcy proceedings instituted against him shall not be recoverable by the trustee by virtue of the adjudication, even if the attorney had knowledge of the acts of Bankruptcy on account of which the proceedings were instituted.

(b)Money paid in good faith by a debtor to his attorney on account of legal costs in criminal proceedings instituted against him shall not be recoverable by the trustee by virtue of the adjudication, even if the attorney had knowledge of the acts of Bankruptcy on account of which the proceedings were instituted; however, if the Court considers that the amounts paid are excessive, it shall determine what it considers to be a reasonable amount, and the trustee may recover the balance from the attorney.

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Division C: Subsequent Bankruptcy

preamble-5.

Creditor

Trustee Deemed Creditor

88.

Where additional Receiving Orders have been made against a bankrupt, or where a bankrupt has died and an Order has been made for the administration of his Estate in Bankruptcy, the trustee in the Bankruptcy immediately preceding such Order shall, for the purposes of any proceedings consequent upon such Order, be deemed a creditor in respect of any debt provable in the subsequent Bankruptcy that has not been paid in full.

Trustee Deemed

Property to be Vested

89.

(a)If, consequent upon an additional Receiving Order against a bankrupt, an adjudication of Bankruptcy is made against him, or if an Order is made for the administration of the Estate of a deceased bankrupt in Bankruptcy, all property acquired by him after the adjudication immediately preceding the Order and which, on the date of filing of the subsequent Bankruptcy petition, had not been distributed among the creditors in the preceding Bankruptcy, shall vest in the trustee in the subsequent Bankruptcy or in the trustee administering the Estate in Bankruptcy.

(b)The provision of subsection (a) shall not prejudice anything done in respect of the property by the Official Receiver or the trustee in the preceding Bankruptcy without knowledge of the filing of the subsequent Bankruptcy petition, and shall not derogate from the provisions of Sections 101 and 102.

Previously

Duty of Trustee

90.

A trustee in Bankruptcy who receives notice of a further Bankruptcy petition filed against the bankrupt, or of a petition for the administration of the bankrupt's Estate in Bankruptcy, shall retain, until the further petition is determined, all property then held by him that was acquired by the bankrupt since his adjudication; if, pursuant to the further petition, an adjudication of Bankruptcy or an Order for the administration of the Estate in Bankruptcy is made, the trustee shall transfer all such property or the proceeds of its sale to the trustee in the subsequent Bankruptcy or to the trustee administering the Estate in Bankruptcy, after deducting his expenses.

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