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.
Law
Companies Law, 5759-1999
חוק החברות
Chapter II: Foreign Company
Registration Obligation of a Foreign Company
346.
[Amendment: 5782, 5784-2]
(a)A foreign company shall not maintain a place of business in Israel, including an office for the transfer or registration of shares, unless it has been registered as a foreign company in accordance with the provisions of this Section and has paid the registration and publication fees prescribed by the Minister pursuant to this Section.
(b)The application for registration shall be submitted to the Registrar within one month after the establishment of the place of business, and the following documents shall be attached thereto:
(1)A copy and translation into Hebrew or English — unless the documents were submitted in Hebrew or English — certified in the manner prescribed by the Minister, of the documents under which the company was incorporated or by which it operates, as required under the laws of the state in which it was incorporated, including its articles of association, if any;
(2)A list of the directors of the company;
(3)The name, address, and digital address — one of each item listed in the Fourth Schedule — of a person residing in Israel who is authorized to receive on behalf of the company process and notices that are to be served on the company;
(4)A certified copy, in the manner prescribed by the Minister, of a power of attorney authorizing a person ordinarily residing in Israel to act on behalf of the company in Israel.
(c)If any change occurs in a document, or in the directors, or in the name, address, or digital address — one of each item listed in the Fourth Schedule — of any of those referred to in paragraphs (3) and (4) of subsection (b), the company shall notify the Registrar thereof within fourteen days of the date of the change.
(c1)The Registrar shall register the digital address attached to the application for registration pursuant to subsection (b)(3) or notified by a foreign company pursuant to subsection (c), after compliance with the provisions of Section 3b(a)(1) and (3) of the Digital Communication with Public Bodies Law, and after verifying that the digital address is valid and active.
(d)The Minister may prescribe additional documents that a foreign company is required to attach to the application for registration and required to notify the Registrar of any changes thereto.
Service of Process on a Foreign Company
347.
Process or a notice that is to be served on a foreign company registered in Israel shall be deemed to have been duly served if addressed to the authorized person notified to the Registrar as referred to in Section 346 and left at the address so notified or sent thereto by post.
Annual Report
348.
A foreign company shall submit, once a year, an annual report as the Minister shall prescribe.
Penalties
349.
A foreign company that has violated the provision of Section 346(a), and any office holder or agent thereof who was a party to the violation, shall be liable to a fine as referred to in Section 61(a)(2) of the Penal Law, 5737–1977, and in the case of a continuing violation, to an additional fine as referred to in Section 61(c) of that Law for each day on which the violation continues, from the day the company received notice from the Registrar of Companies.
Foreign Company That Has Ceased to Maintain a Place of Business in Israel
349a.
[Amendment: 5771-3]
(a)A foreign company that has ceased to maintain a place of business in Israel and has notified the Registrar thereof shall be exempt from its obligations under this Chapter, commencing on the date of delivery of the notice; however, the Minister may prescribe an earlier date of exemption with respect to the obligation to pay a fee under this Chapter.
(b)Notwithstanding the provisions of subsection (a), a company that has delivered a notice as referred to in that subsection is not exempt from its obligation as referred to in Section 346(b)(3), unless it has provided the Registrar with an alternative address for service of process and notices; if the company has provided the Registrar with such an alternative address outside of Israel, no court leave shall be required for the purpose of serving process and notices on the company relating to the company's activities in Israel during the period in which it maintained a place of business in Israel, pursuant to the provisions of Regulation 500 of the Civil Procedure Regulations, 5744–1984.
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Contact Us →Chapter III: Compromise or Arrangement
Section A: General Provisions
Compromise or Arrangement – General Provisions
350.
[Amendment: 2005, 2012-2, 2018]
(a)Where a compromise or arrangement is proposed between a Company and its creditors or shareholders, or between it and any particular class thereof, that does not constitute a debt arrangement as defined in Section 318 of the Insolvency and Economic Rehabilitation Law or an economic rehabilitation plan as defined in Section 4 of that Law, the court may, upon application by the Company, by a shareholder, or by a trustee if the Company is in liquidation, order the convening of meetings of such creditors or shareholders, as the case may be, in accordance with the provisions of subsection (a1) and in such manner as the court shall direct.
(a1)The meetings of creditors or shareholders shall be held separately for each class of creditors or shareholders (in this Chapter – class meetings); for this purpose, "class" means a group of creditors or shareholders having a common interest in relation to the arrangement or compromise that is materially distinct from the interest of the other creditors or shareholders and that justifies holding a separate meeting.
(a2)A creditor or shareholder shall exercise the right to vote at a class meeting in good faith and in an accepted manner, and shall refrain from abusing their power.
(i)If at every class meeting convened pursuant to subsection (a), a majority in number of those participating in the vote, excluding abstentions, holding together three-quarters of the value represented in the vote, have agreed to the compromise or arrangement, and the court has approved the compromise or arrangement, they shall be binding upon the Company and upon all creditors or shareholders or the class thereof, as the case may be, and if the Company is in liquidation – upon the trustee as well.
(i1)The court that approved a compromise or arrangement pursuant to subsection (i) shall have jurisdiction to adjudicate any dispute that arises regarding the interpretation of the compromise or arrangement after their approval or regarding their implementation.
(j)An order made pursuant to subsection (i) shall have no effect until a certified copy thereof has been filed with the Registrar; a copy of the order shall be annexed to every copy of the Company's articles of association issued after the making of the order, and if the Company has no articles of association – to every copy of the document under which the Company was incorporated and under which it operates, issued as aforesaid.
(k)In this Chapter –
"Company" – includes a foreign company that carries on business or has assets in Israel, even if it has not been registered pursuant to Section 346;
"arrangement" – includes a reorganization of the share capital by way of consolidation of shares of different classes or by way of division of shares into different classes, or by both methods simultaneously.
(l)The Minister may prescribe provisions for the implementation of this Chapter, including with respect to the convening of meetings, as well as with respect to rules of procedure, the appointment of an officeholder, provisions regarding indemnification and insurance for an officeholder, and the determination of the officeholder's powers by the court.
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Contact Us →Section C: Appointment of Expert to Examine Debt Arrangement in Bond Company
Section B: Settlement or Arrangement for the Purpose of Rehabilitation of the Company
Section B: Compromise or Arrangement for the Purpose of Company Rehabilitation
Definitions
350a.
[Amendment: 2012-2]
In this Section –
"owner of an asset by virtue of a retention of title clause" – a person who sold an asset to a company and transferred possession of the asset to the company, prior to the issuance of a stay of proceedings order with respect to it, pursuant to a contract that includes a retention of title clause, and ownership of the sold asset remained with that person by virtue of that clause, provided that the provisions of Section 2(b) of the Pledge Law, 5727–1967, do not apply to the transaction;
"rehabilitation application" – an application under Section 350 for a compromise or arrangement whose purpose is the rehabilitation of the company;
"adequate protection" –
(1)with respect to a secured asset – preservation of the value of the debt secured by the charge, having regard, inter alia, to the level of certainty of repayment of the debt from the asset; for this purpose, "value of the secured debt" – the amount that the creditor would have received from the sale of the asset in the liquidation of the company at the time of the submission of the application in which the claim of adequate protection is being examined, or at such time as the court determined in a reasoned decision to be more justified and fair in the circumstances of the matter, all unless the court determined otherwise, for reasons that shall be recorded;
(2)with respect to an asset subject to a retention of title clause – securing payment of the debt arising from non-payment of the consideration for the asset up to the amount of the debt that would have been recovered from its sale by the owner by virtue of the retention of title clause at the time of the submission of the application in which the claim of adequate protection is being examined;
"rehabilitation expenses" – expenses associated with rehabilitation proceedings;
"rehabilitation proceedings" – proceedings under this Section;
"insolvency proceedings" – any of the following:
(1)proceedings under this Chapter whose purpose is the rehabilitation of the company;
(2)liquidation proceedings or receivership proceedings under the Companies Ordinance;
"company under a stay of proceedings" – a company to which a stay of proceedings order applies;
"asset subject to a retention of title clause" – an asset sold to a company and transferred to its possession, prior to the issuance of a stay of proceedings order with respect to it, pursuant to a contract that includes a retention of title clause, and ownership of the sold asset remained with the seller by virtue of that clause, provided that the provisions of Section 2(b) of the Pledge Law, 5727–1967, do not apply to the transaction;
"stay of proceedings order" – an order issued pursuant to Section 350b;
"commencement of rehabilitation proceedings" – the date of submission of a rehabilitation application or an application for a stay of proceedings order, whichever is earlier;
"retention of title clause" – a provision in a contract for the sale of an asset to a company, pursuant to which ownership of the sold asset shall remain with the seller until after payment of the consideration therefor.
Stay of Proceedings Order
350b.
[Amendment: 2012-2]
(a)In this Section, "proceeding" – including a proceeding under the Execution Law, 5727–1967, but excluding such a proceeding whose execution has been completed within the meaning of Section 357 of the Companies Ordinance, prior to the issuance of a stay of proceedings order, and including the transfer of possession of an asset to the owner of the asset by virtue of a retention of title clause.
(b)(1) Where a rehabilitation application has been submitted, the court may, if satisfied that it would assist in the rehabilitation of the company, issue an order providing that for a period not exceeding nine months, no proceeding against the company may be continued or commenced except with the leave of the court and subject to such conditions as it shall determine.
(2)The court may extend the period referred to in paragraph (1), for special reasons that shall be recorded, by a period not exceeding three months at a time, if satisfied that there is justification for the continuation of the rehabilitation proceedings and that the extension is necessary for that purpose.
(c)The court may issue a stay of proceedings order before the rehabilitation application has been submitted, if satisfied that it is required for the purpose of rehabilitating the company.
(d)(1) A stay of proceedings order may be issued ex parte, if the court is satisfied that the circumstances of the matter justify doing so, provided that notice of the issuance of the stay of proceedings order shall be published to the public and delivered to those who may be affected by it; the Minister may prescribe provisions regarding the manner of publication.
(2)Where a stay of proceedings order has been issued ex parte, the court shall hold an inter partes hearing as soon as possible and no later than 14 days from the date of issuance of the order.
(e)The period during which proceedings were stayed pursuant to this Section shall not be counted within the periods prescribed under the Companies Ordinance, insofar as the stay of proceedings is relevant thereto, or within the periods prescribed under the Limitation Law, 5718–1958, unless the court ordered otherwise.
Exceptions to the Stay of Proceedings
350c.
[Amendment: 2012-2]
(a)Where a stay of proceedings order has been issued and the court finds that the matter set out in subsection (b) is satisfied, it shall permit, notwithstanding the order –
(1)at the request of a secured creditor – to realize an asset charged in its favor;
(2)at the request of a creditor who is the holder of a floating charge – to crystallize it;
(3)at the request of a creditor who is the holder of a floating charge that has crystallized – to realize one or more assets over which the charge has crystallized as aforesaid;
(4)at the request of an owner of an asset by virtue of a retention of title clause – to take possession of the asset, provided that such right existed but for the stay of proceedings order.
(b)A permit as referred to in subsection (a) shall be granted only if one of the following is satisfied:
(1)the charged asset or the asset subject to the retention of title clause, as the case may be, does not suffice to ensure adequate protection for the creditor or the owner of the asset, and no other means of ensuring such protection have been established;
(2)the realization of the charge, the crystallization of the floating charge, or the taking of possession, as the case may be, would not prejudice the possibility of rehabilitating the company.
Appointment of an Office Holder for a Company under a Stay of Proceedings
350d.
[Amendment: 2012-2]
(a)The court may appoint for a company under a stay of proceedings an office holder for the purpose of implementing the rehabilitation proceedings, in whole or in part (in this Section – office holder), and may appoint an officer of the company as such office holder, provided that it shall not appoint an officer as office holder or decide not to appoint an office holder, unless satisfied, after having afforded the creditors of the company an opportunity to present their arguments on the matter, that doing so would assist in the rehabilitation of the company and would not prejudice such creditors.
(b)The court shall determine the powers and duties of the office holder, and may, inter alia, determine that the office holder shall be granted all or any of the powers and duties necessary for the performance of one or more of the following functions:
(1)formulating a plan for the rehabilitation of the company;
(2)arranging the debts owed to the company's creditors;
(3)managing the company.
(c)(1) Where the court has not determined the powers and duties of an office holder who is not an officer of the company, the office holder shall have the powers vested in a liquidator under the Companies Ordinance, and shall be subject to the duties applicable to such a liquidator, all with the necessary modifications and subject to modifications pursuant to this Chapter.
(2)The court shall determine the powers and duties of an office holder who is an officer of the company, having regard to the need to ensure that no conflict of interest arises between them and such person's role and position in the company.
(d)Where powers and duties that may be vested in an office holder under this Law remain with the company, or where the court has appointed an officer of the company as office holder, the court shall appoint a supervisor over the company or over the officer, as the case may be, and shall determine the supervisor's powers and duties, to the extent required for that purpose, unless satisfied that such appointment is not required in the circumstances of the matter; nothing in the provisions of this subsection shall derogate from the court's power to vest supervisory powers in an office holder or to appoint multiple office holders, if required in the circumstances of the matter.
(e)Where no office holder has been appointed for a company under a stay of proceedings, or where powers or duties that may be vested in an office holder under this Law remain with the company notwithstanding the appointment of an office holder, the provisions of this Section applicable to an office holder shall apply to the company, to the extent required.
(f)The court may appoint an office holder for the company also within the framework of a stay of proceedings order issued ex parte in accordance with the provisions of Section 350b(d), and may determine that the appointment shall be a temporary appointment for a period that it shall determine.
(g)The Minister may prescribe provisions regarding this Section, including provisions regarding the qualifications for appointment as an office holder, restrictions on such appointment, the office holder's remuneration and expenses.
Charged Assets and Assets Subject to a Retention of Title Clause – Use, Lease or Sale
350e.
[Amendment: 2012-2]
(a)An office holder may use an asset of a company under a stay of proceedings that is a charged asset or an asset subject to a retention of title clause, lease it or sell it, including selling it free and clear of any charge or other right of the creditor or of the owner of the asset by virtue of the retention of title clause, as the case may be, in the ordinary course of the company's business, unless the court is satisfied that one of the following is met:
(1)the use, lease or sale is not required for the purpose of rehabilitating the company;
(2)following the use, lease or sale, the asset, its proceeds, or any asset to be acquired in exchange for such proceeds (in this Section – substitute asset), as the case may be, would not suffice to ensure adequate protection for the creditor or the owner of the asset by virtue of the retention of title clause, and no other means of ensuring such protection have been established.
(b)(1) Without derogating from the provisions of subsection (a), where the asset is charged by a fixed charge, its sale as aforesaid requires the approval of the court, unless the creditor's consent has been obtained; for this purpose, "sale" – including payment by means of an asset subject to a fixed charge.
(2)Court approval pursuant to paragraph (1) may be granted within the framework of a stay of proceedings order, including an order issued ex parte, and the court may prescribe provisions regarding the sale of assets charged by a fixed charge, in general or with respect to a category of such assets.
(c)(1) An office holder may use an asset of a company under a stay of proceedings that is a charged asset or an asset subject to a retention of title clause, lease it or sell it, including selling it free and clear of any charge or other right of the creditor or of the owner of the asset by virtue of the retention of title clause, even other than in the ordinary course of the company's business, provided that the consent of the creditor or the owner as aforesaid has been obtained, or that court approval has been granted therefor.
(2)The court shall not grant approval as referred to in paragraph (1), unless satisfied that the use, lease or sale is essential for the purpose of rehabilitating the company and that the asset, its proceeds, or the substitute asset, as the case may be, even after such use, lease or sale, will suffice to ensure adequate protection for the creditor or the owner of the asset by virtue of the retention of title clause, or that other means of ensuring such protection have been established.
(d)Where an asset has been sold pursuant to this Section (in this subsection – the original asset), free and clear of any charge or other right of the creditor or the owner of the asset by virtue of the retention of title clause, the proceeds thereof or the substitute asset, to the extent identifiable or traceable, shall be charged in favor of the creditor at the same priority ranking, or shall be deemed assets subject to a retention of title clause, as the case may be, to the extent required to secure repayment of the secured debt or to secure repayment of the debt arising from non-payment of the consideration, as the case may be; however, the creditor or the owner of the asset by virtue of the retention of title clause shall not be entitled to recover from the substitute asset an amount exceeding the value of the original asset, all unless the court determined otherwise.
Supply of Infrastructure Services
350f.
[Amendment: 2012-2]
(a)In this Section –
"infrastructure supplier" – a person whose business involves the supply of electricity, water or other infrastructure services as determined by the Minister, in consultation with the relevant minister (in this Section – infrastructure service), and who supplied such service to a company under a stay of proceedings, including pursuant to an existing contract as defined in Section 350h, on the eve of the commencement of rehabilitation proceedings, or shortly before that date even if the supplier ceased to supply it;
"relevant minister" – the minister responsible for the field of activity of the infrastructure supplier.
(b)An infrastructure supplier shall not cease to supply the infrastructure service to a company under a stay of proceedings and shall continue to supply it, for consideration, under the payment terms and supply conditions that were customary between the parties, or under such terms and conditions as prescribed by law, as the case may be, or as directed by the court having regard to market conditions and the provisions of law, provided that such consideration shall not include consideration for infrastructure services supplied prior to the commencement of rehabilitation proceedings.
(c)The court may permit an infrastructure supplier to cease supplying the service if satisfied that the continued supply of the service is not required for the rehabilitation of the company.
(d)Where consideration has not been paid to the infrastructure supplier in accordance with the payment terms referred to in subsection (b) for a service supplied after the issuance of the stay of proceedings order, or where the court is satisfied that there is a reasonable concern that consideration will not be paid in accordance with such payment terms, the court may condition the continued supply of the service on payment of the consideration or on securing payment by means that it shall determine, including the provision of a guarantee, or may permit the infrastructure supplier to cease supplying the service.
(e)The consideration for an infrastructure service supplied pursuant to this Section shall be treated as rehabilitation expenses.
Supply of Essential Goods or Services
350g.
[Amendment: 2012-2]
(a)In this Section –
"essential supplier" – a person who supplied to a company under a stay of proceedings an essential service or essential goods that are not an infrastructure service, otherwise than pursuant to an existing contract as defined in Section 350h, on the eve of the commencement of rehabilitation proceedings, or shortly before that date even if the supplier ceased to supply the service or goods, provided that in the circumstances of the matter it is not possible to replace such supplier with another supplier immediately, or that there is special difficulty in doing so;
"essential service or essential goods" – a service or goods required for the continued operation of the company.
(b)(1) The court may order an essential supplier to continue supplying to a company under a stay of proceedings the essential service or essential goods for a period not exceeding 60 days from the date of issuance of the stay of proceedings order, or for a longer period as determined by the court for reasons that shall be recorded, for consideration, under the payment terms and supply conditions that were customary between the parties, or under such terms and conditions as prescribed by law, as the case may be, or for such consideration and under such terms and conditions as the court shall determine having regard to market conditions and the provisions of law, provided that the essential supplier's refusal to continue supplying the essential service or essential goods is based on unreasonable grounds.
(2)The court may issue an order as referred to in paragraph (1) if satisfied that it is required for the purpose of rehabilitating the company and that the consideration will be paid in accordance with the payment terms referred to in that paragraph, and may establish means of securing payment, including the provision of a guarantee.
(3)In this subsection, "unreasonable grounds" – including the company's financial difficulties, its insolvency proceedings, non-payment of a prior debt, or its refusal of the essential supplier's demand for an unreasonable change in the payment terms or supply conditions compared to those customary in the market.
(c)The court may from time to time extend the period prescribed in subsection (b) by a period not exceeding 60 days at a time, provided that it is satisfied that all of the following are met:
(1)the continued supply of the essential service or essential goods is essential for the rehabilitation of the company;
(2)it is not possible to replace the essential supplier without prejudicing the rehabilitation of the company;
(3)during the period prescribed in subsection (b), consideration for the essential service or essential goods was paid as required;
(4)the consideration for the continued supply of the essential service or essential goods will be paid in accordance with the payment terms referred to in subsection (b).
(d)The consideration for an essential service or essential goods supplied pursuant to this Section shall be treated as rehabilitation expenses.
Existing Contracts
350h.
[Amendment: 2012-2]
(a)In this Section and in Sections 350i through 350k –
"breach" – excluding a breach arising from an insolvency ground;
"existing contract" – a contract to which a company under a stay of proceedings is a party, the date of its formation preceded the date of commencement of rehabilitation proceedings and its performance was not completed by both parties on that date, even if it was lawfully terminated shortly before that date;
"insolvency ground" – a provision in a contract that confers a right of termination or provides that the contract shall be void, by reason of insolvency proceedings of the company or its financial difficulties.
(b)An existing contract shall not be terminated by the other party to the contract, nor shall it become void, by reason of an insolvency ground.
(c)An office holder may decide to continue the performance of an existing contract (in this Section – adoption) or to disclaim it, to the extent required for the purpose of rehabilitating the company under a stay of proceedings; however, adoption of an existing contract in respect of which the other party has a right to terminate it, or which was lawfully terminated shortly before the commencement of rehabilitation proceedings due to a breach thereof by the company, or disclaimer of an existing contract, shall require court approval.
(d)Where the other party had a right to terminate an existing contract due to a breach thereof by the company, the court shall not approve its adoption unless satisfied that the company will perform its obligations under the contract from the date of adoption onwards; the court may establish means of securing the performance of such obligations, including the provision of a guarantee.
(e)An existing contract that was breached by the company prior to its adoption or disclaimer shall not be terminated by the other party to the contract until the date of adoption or disclaimer except with the consent of the office holder or with court approval subject to conditions that it shall determine.
(f)Where an existing contract has been adopted with court approval, it shall not be terminated by reason of a breach that occurred prior to adoption.
(g)Nothing in the provisions of this Section regarding adoption shall permit, without the consent of the other party, the enforcement of an existing contract that is an employment contract, a contract for the provision of personal services, or a contract for the extension of credit to the company.
(h)Where the court has approved the disclaimer of an existing contract, all rights and liabilities of the company under the contract shall cease from that date; however, the disclaimer shall not prejudice the rights and liabilities of any other person except to the extent necessary to release the company and its assets from liability.
Assignment of Obligations under an Adopted Existing Contract
350i.
[Amendment: 2012-2]
(a)Notwithstanding the provisions of the Assignment of Obligations Law, 5729–1969, the court may approve the assignment of the rights and liabilities of a company under a stay of proceedings pursuant to an existing contract adopted under this Section to an assignee that it approves, even if a provision prohibiting such assignment was included in the existing contract, and with respect to the assignment of a liability – even without the consent of the other party to the contract, provided that the assignment is essential for the rehabilitation of the company and does not prejudice the other party to the contract.
(b)The court may impose conditions on an assignment pursuant to this Section, including means of securing the performance of the assigned obligations by the assignee, including the provision of a guarantee.
Proceedings for Adoption or Disclaimer of an Existing Contract
350j.
[Amendment: 2012-2]
(a)The other party to an existing contract may request that the office holder notify it of its decision regarding adoption or disclaimer, and submit to the court an application for approval of adoption or disclaimer of the contract (in this Section – application for approval), as required in the circumstances.
(b)The office holder shall notify the other party whether it intends to adopt or disclaim the contract and shall submit an application for approval to the court, as required, within 45 days from the date on which it received the request from the other party, or within a longer period as determined by the court; the court may shorten such period for special reasons that justify doing so.
(c)The court may approve adoption or disclaimer of an existing contract after affording the other party to the contract an opportunity to present its arguments; the court may condition adoption or disclaimer of the existing contract on such conditions as it deems appropriate.
(d)Where the office holder has not notified its decision as referred to in subsection (b), or has not submitted an application for approval, as the case may be, despite the request of the other party to the contract pursuant to subsection (a), the contract shall be deemed to have been adopted upon the expiry of the period referred to in subsection (b).
Status of Obligations under an Existing Contract
350ja.
[Amendment: 2012-2]
(a)Where an existing contract has been adopted, obligations whose performance falls due from the date of adoption onwards shall be treated as rehabilitation expenses.
(b)(1) Where the other party to an adopted existing contract has been prejudiced by a breach thereof by the company prior to its adoption, including prior to the commencement of rehabilitation proceedings, such party shall be deemed a creditor of the company for the amount of the prejudice, and such amount shall be considered a provable debt in rehabilitation proceedings.
(2)Notwithstanding paragraph (1), the amount of the prejudice shall be treated as rehabilitation expenses if the court is satisfied that separating the obligation that was breached prior to adoption from the obligation that was subsequently performed is not reasonable and not fair in the circumstances of the matter, and the other party to the contract is performing its obligations under the contract during the rehabilitation proceedings of the company.
(c)A person who has suffered prejudice due to a breach of an existing contract by the company occurring prior to its disclaimer, including prior to the commencement of rehabilitation proceedings, or by reason of a disclaimer of an existing contract, shall be deemed a creditor of the company for the amount of the prejudice, and such amount shall be considered a provable debt in rehabilitation proceedings.
(d)The obligations of the parties to an existing contract whose performance falls due from the commencement of rehabilitation proceedings until adoption or disclaimer of the contract shall be treated as rehabilitation expenses if the office holder consented to their performance, or if the court finds that this is justified in the circumstances of the matter.
New Credit
350jb.
[Amendment: 2012-2]
(a)The court may permit an office holder to enter into a contract for obtaining credit required for the purpose of financing the continued operation of the company under a stay of proceedings, or to establish a credit facility that the office holder may draw upon for the purpose of financing the continued operation as aforesaid, all for purposes and subject to conditions as determined by the court (in this Section – new credit).
(b)Amounts required for the repayment of new credit granted with court approval pursuant to subsection (a) shall be treated as rehabilitation expenses, unless the court determined otherwise.
(c)Where the court is satisfied that it is not possible to obtain new credit in the amount required in the circumstances of the matter, the repayment of which would be subject to the provisions of subsection (b), it may permit the office holder to obtain new credit in an amount that it shall determine, the repayment of which shall be secured by a charge over an unencumbered asset of the company, or by a subordinate charge over a charged asset or an asset subject to a retention of title clause, provided that the right of the owner of the asset by virtue of the retention of title clause to recover from the company in respect of non-payment of the consideration shall take priority over the right of the new credit provider.
(d)Where the court is satisfied that it is not possible to obtain new credit in the amount required in the circumstances of the matter, the repayment of which would be subject to the provisions of subsection (c), and that obtaining the credit is essential for the rehabilitation of the company, it may permit the office holder to obtain new credit in an amount that it shall determine, the repayment of which shall be secured by a charge over an asset of the company that is a charged asset or an asset subject to a retention of title clause, at the same priority ranking as the existing charge or the right of the owner of the asset by virtue of the retention of title clause, as the case may be.
(e)Where the court is satisfied that it is not possible to obtain new credit in the amount required in the circumstances of the matter, the repayment of which would be subject to the provisions of subsection (d), and that obtaining the credit is essential for the rehabilitation of the company, it may permit the office holder to obtain new credit in an amount that it shall determine, the repayment of which shall be secured by a charge over an asset of the company that is a charged asset or an asset subject to a retention of title clause, at a priority ranking higher than the existing charge or the right of the owner of the asset by virtue of the retention of title clause, as the case may be.
(f)The court shall not permit the office holder to obtain new credit as referred to in subsections (d) or (e), unless, after charging the asset pursuant to those subsections, the charged asset or the asset subject to the retention of title clause, as the case may be, will suffice to ensure adequate protection for the secured creditor or the owner of the asset by virtue of the retention of title clause, or unless other means of ensuring such protection have been established; with respect to a charged asset, the value of the secured debt for the purpose of ensuring adequate protection under this subsection shall be the amount that the creditor would have recovered from the charged asset, at the time and in the manner determined by the court, in a reasoned decision, to be justified in the circumstances of the matter.
(g)Notice of an office holder's application to obtain new credit shall be delivered to all or some of the company's creditors, as the court shall determine.
Approval of a Compromise or Arrangement for the Purpose of Company Rehabilitation
350jc.
[Amendment: 2012-2]
(a)Notwithstanding the provisions of Section 350(i), a compromise or arrangement whose purpose is the rehabilitation of the company shall be binding upon the company and all of its creditors, shareholders, or a class thereof, and if it is in liquidation – upon the liquidator and all contributories, even if the consent referred to in that Section was not obtained in all class meetings, provided that both of the following are satisfied:
(1)more than half of the total value represented in the votes at all class meetings combined consented to the proposal;
(2)the court approved the compromise or arrangement after being satisfied, inter alia and to the extent required, on the basis of a valuation of the company submitted by an expert on its behalf or on behalf of the relevant parties, that the compromise or arrangement is fair and equitable with respect to each class that did not consent thereto, including that the following are met:
(a)if the compromise or arrangement is not approved, liquidation of the company would be unavoidable and the consideration offered to the class that did not consent to the compromise or arrangement is not less in value than the amount that such class would have received in the liquidation of the company;
(b)with respect to a class meeting of secured creditors who did not consent to the compromise or arrangement – it has been determined with respect to each such creditor that either the value of the secured debt will be paid to it immediately, or deferred payments equal in value to the value of the secured debt will be made, and means of securing repayment of such payments have been established, or that it will receive an asset equal in value to the value of the secured debt; in this paragraph, "value of the secured debt" – the amount of the debt secured by the charged asset at the time of court approval of the compromise or arrangement, less the expenses incurred in preserving or realizing the asset;
(c)with respect to each class meeting of creditors who did not consent to the compromise or arrangement – they receive consideration equal to the full amount of the debt approved for them, whether by immediate payment, deferred payments, receipt of securities, or any other means, or shareholders receive no consideration whatsoever and retain no asset whatsoever by virtue of their being shareholders.
(b)Nothing in the provisions of subsection (a) shall derogate from the court's power to decline to approve a compromise or arrangement whose purpose is the rehabilitation of the company even if the conditions of that subsection are met, for other reasons, and the court may take into account, inter alia, matters not relating to the creditors of the company, including matters relating to the employees of the company or to the public.
(c)The court shall not approve a compromise or arrangement whose purpose is the rehabilitation of the company if satisfied that the consideration offered to a creditor who did not consent to the compromise or arrangement is less in value than the amount that such creditor would have received in the liquidation of the company, even if the class meeting to which that creditor belongs consented to the compromise or arrangement.
Termination of Rehabilitation Proceedings
350jd.
[Amendment: 2012-2]
(a)The court may order the termination of rehabilitation proceedings if it did not approve a proposed compromise or arrangement pursuant to the provisions of this Chapter, or if satisfied that one of the following is met:
(1)there is no reasonable prospect of rehabilitating the company;
(2)it is not possible to formulate a compromise or arrangement that has a reasonable prospect of being approved by the court;
(3)the continuation of the rehabilitation proceedings would prejudice the creditors.
(b)Where the court has ordered the termination of rehabilitation proceedings, it shall determine the date on which the proceedings are to be terminated, and may determine a deferred date, inter alia, to enable the submission of an application for the liquidation of the company.
(c)The court's decision to terminate rehabilitation proceedings shall not affect the validity of any contract or transaction entered into by the office holder, or any transfer of an asset or payment made by the office holder, including any act performed for that purpose.
Transition from Rehabilitation Proceedings to Liquidation
350if.
[Amendment: 2012-2]
Where a liquidation order has been issued for a company pursuant to the Companies Ordinance on the basis of a liquidation application submitted before the expiry of the stay of proceedings order issued with respect to it –
(1)the liquidation application shall be deemed to have been submitted on the date of commencement of rehabilitation proceedings, and the liquidation order shall be deemed to have been issued on the date of issuance of the stay of proceedings order;
(2)rehabilitation expenses under this Section shall be deemed liquidation expenses;
(3)contracts or transactions entered into by the office holder, or any transfer of an asset or payment made by the office holder, including any act performed for that purpose, shall be deemed to have been carried out by the liquidator.
Application of Provisions
350ig.
(a)The provisions of the Companies Ordinance applicable to the winding up of a company by the court, including the penal provisions in Sections 373 through 378 of the Ordinance, but excluding the provisions of Sections 292 through 296, 300(d), 304 in fine with respect to the appointment of the Official Receiver, 308, 313, 316, and 361 through 365 of the Ordinance, with respect to onerous property that is an existing contract as defined in Section 350h of this Law, shall apply to rehabilitation proceedings, insofar as they relate to such proceedings, with the necessary modifications and subject to the following, all having regard to the purposes of rehabilitation proceedings and for so long as no other arrangement has been prescribed on that matter pursuant to this Chapter:
(1)the date of commencement of rehabilitation proceedings shall be deemed the date of commencement of liquidation, and the date of issuance of the stay of proceedings order shall be deemed the date of issuance of the liquidation order;
(2)provisions applicable with respect to a liquidation order shall apply to a stay of proceedings order;
(3)provisions applicable with respect to a liquidator or a provisional liquidator shall apply to an office holder or a temporary office holder, as the case may be;
(4)provisions applicable with respect to liquidation expenses shall apply to rehabilitation expenses;
(5)provisions applicable with respect to a provable debt in liquidation shall apply to a provable debt in rehabilitation proceedings.
(b)The penal provision in Section 317 of the Companies Ordinance shall apply to an office holder who has failed to fulfill a duty under the provisions of this Section, or
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