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Insolvency and Economic Rehabilitation Law, 5778-2018

חוק חדלות פירעון ושיקום כלכלי, תשע"ח-2018

Published: 2018-03-15Consolidated Hebrew text as of 2026-08-02 · Last amended 2026-07-28✓ Amendment status checked against the Knesset legislation record on 2026-09-17
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Unofficial English translation — for reference only. It may contain errors or omissions and cannot be relied on as a legal text. Only the Hebrew text published in Reshumot is legally binding.More

This English text was translated from the official Hebrew using a range of translation tools, and it undergoes ongoing checks and updates. It is not a certified translation.

Despite these checks, it may contain errors, omissions, or imprecise renderings of legal terminology and cross-references, and it may not yet reflect the latest amendments. It cannot be relied upon as a legal text.

The Hebrew text as published in Reshumot (ספר החוקים) and on the Knesset website is the sole authoritative and legally binding version. In any discrepancy, the Hebrew text prevails.

This translation is provided for informational purposes only and does not constitute legal advice. For use in legal proceedings, request a certified Expert Legal Opinion.

Chapter IV: Realisation of the Assets of the Creditors' Fund

Realisation of the Assets of the Creditors' Fund§

227.

Where an order to commence proceedings has been issued in respect of a debtor who is an individual, or where such an order has been issued in respect of a debtor who is a corporation and the court has ordered its winding up, the trustee shall act to realise the assets of the creditors' fund in a manner that maximises their value; the Minister, with the approval of the Constitution, Law and Justice Committee, may prescribe provisions regarding the means of realisation of the assets of the creditors' fund.

Withdrawal of Funds from a Provident Fund§

228.

The withdrawal of funds due to a debtor who is an individual from a provident fund as defined in the Financial Services Supervision Law (Provident Funds), 5765-2005, requires the approval of the court; the court may order the withdrawal of such funds, in whole or in part, except for funds designated for the purpose of a pension the date of payment of which as a pension has not yet arrived.

Protection of a Residential Home§

229.
(a)Where the assets of the creditors' fund include real property used, in whole or in part, as the residence of a debtor who is an individual, the right in the real property shall be sold with the approval of the court.
(b)The court shall not order as referred to in subsection (a) except after holding a hearing and affording the debtor and the creditors an opportunity to present their arguments.
(c)The court shall not approve the sale of a right in real property as referred to in subsection (a) unless it has found that all of the following conditions are met:
(1)the benefit to accrue to creditors from the sale of that right outweighs the harm to be caused to the individual as a result thereof, having regard, inter alia, to the age of the individual and the family members residing with the individual and to their personal circumstances, including their state of health;
(2)there is no reasonable possibility of repaying the debt by another means that causes lesser harm to the individual;
(3)the individual and the family members residing with the individual will have reasonable accommodation in their area of residence that is suited to their needs, or an alternative arrangement for a period to be determined by the court under the provisions of subsection (d) of reasonable accommodation in their area of residence that is suited to their needs has been placed at their disposal.
(d)The period of the alternative arrangement shall be determined in accordance with the following provisions:
(1)in respect of an individual in whose case the court is satisfied that the individual will have the ability to fund reasonable accommodation for himself or herself and for the family members residing with the individual after the conclusion of the insolvency proceedings, whether by means of the individual's future earning capacity or by means of other income or rights – for a period of four years, and the court may determine a shorter or longer period if it has found that there is justification for doing so, inter alia on the basis of the considerations listed in subsection (e);
(2)in respect of an individual in whose case the court is not satisfied that the individual will have the ability to fund reasonable accommodation for himself or herself and for the family members residing with the individual after the conclusion of the insolvency proceedings, whether by means of the individual's future earning capacity or by means of other income or rights – for a period to be determined by the court, and the court may determine that the period of the alternative arrangement shall be for the lifetime of the individual.
(e)
(1)In determining the period of the alternative arrangement under subsection (d), the court shall consider, inter alia, the following:
(a)the age of the individual and of the family members residing with the individual, including the individual's proximity to retirement age;
(b)the personal circumstances of the individual and of the family members residing with the individual and their current and future needs, including their state of health;
(c)whether any of the conditions for the extension of the payment period prescribed in section 163(c) are applicable to the individual;
(2)in determining the future earning capacity of the individual, the court shall take into account, inter alia, the individual's age and proximity to retirement age.
(f)The provisions of section 33 of the Tenant Protection Law [Consolidated Version], 5732-1972 shall not apply to a right in real property of the individual or of a person who was the individual's partner in a right in real property, to which the provisions of this section apply.
(g)The provisions of this section shall not apply in respect of the realisation of a mortgage or a pledge of a right in real property of the individual used, in whole or in part, as the individual's residence, and the provisions of Section A: Secured Creditor, of Chapter VI shall apply to such right, and in respect of the provision of an alternative arrangement – the provisions of section 38(c) of the Execution Law shall apply, with the necessary modifications.

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Chapter V: Distribution of the Assets of the Creditors' Fund

Section A: General

Distribution of the Assets of the Creditors' Fund – General Provisions§
230.

Upon the issuance of an order to commence proceedings, the assets of the creditors' fund shall be distributed in accordance with the order of repayment prescribed in Section B: Order of Repayment, and in the manner prescribed in Section C: Manner of Distribution; however, where an economic rehabilitation plan has been approved in respect of a debtor who is a corporation, the distribution shall be made in accordance with the provisions of the plan.

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Section B: Order of Repayment

Order of Repayment§
231.

The debts of the debtor and the expenses of the insolvency proceedings shall be repaid from the assets of the creditors' fund in the following order of priority:

(1)secured debts – in accordance with the provisions of Section A: Secured Creditor, of Chapter VI;
(2)expenses of the insolvency proceedings – in accordance with the provisions of section 233;
(3)preferential debts – in accordance with the provisions of section 234;
(4)debts secured by a floating charge (security interest) over an asset – in accordance with the provisions of Section A: Secured Creditor, of Chapter VI;
(5)general debts – in accordance with the provisions of section 235;
(6)additional interest – in accordance with the provisions of section 236;
(7)deferred debts – in accordance with the provisions of section 237.
Equality§
232.

The debts at each level in the order of repayment shall be repaid to all creditors at that level at an equal rate according to their amounts and without any preference.

Expenses of the Insolvency Proceedings§
233.
(a)The expenses of the insolvency proceedings are:
(1)all expenses arising from acts performed by the trustee or anyone on the trustee's behalf in the framework of the insolvency proceedings, including fees and the trustee's remuneration;
(2)the expenses involved in convening and administering the creditors' committee within the meaning of section 263;
(3)in respect of a debtor who is an individual who has died – reasonable funeral expenses for the individual as well as the expenses of the estate and its administration;
(4)any other expense prescribed under this Law as being treated as an expense of the insolvency proceedings.
(b)The expenses of the insolvency proceedings shall be paid at the time prescribed for their payment under law or agreement.
(c)Where the unencumbered assets of the creditors' fund are insufficient to repay the expenses of the insolvency proceedings, those expenses shall be repaid from the assets subject to a floating charge (security interest).
Preferential Debts§
234.
(a)The past debts listed below are preferential debts and they shall be repaid in the following order of priority:
(1)
(a)a debt in respect of wages within the meaning of the Wage Protection Law, 5718-1958, owed to an employee for the period prior to the submission of the application for an order to commence proceedings, and in respect of severance pay under the Severance Pay Law, 5723-1963, less the benefit paid under Chapter VIII of the National Insurance Law, in an amount not exceeding NIS 33,250 in respect of wages or NIS 51,820 in respect of severance pay together with wages;
(b)the amounts specified in sub-paragraph (a) shall be updated on 1 January of each year, according to the rate of change in the average wage within the meaning of the National Insurance Law, and shall be rounded to the nearest ten shekels; the Minister shall publish a notice in Reshumot (Official Gazette) of the updating of the amounts;
(2)an amount that the debtor deducted at source under sections 164 or 170 of the Income Tax Ordinance [New Version] and had not yet transferred to the Tax Authority, as well as an amount that the debtor deducted under section 342(c) of the National Insurance Law and had not yet transferred to the National Insurance Institute;
(3)a maintenance debt for which liability is pursuant to a judgment and the date of repayment of which fell before the issuance of the order to commence proceedings;
(4)the principal of a value added tax debt to the Tax Authority that arose in the 12 months preceding the issuance of the order to commence proceedings;
(5)a compulsory payment the repayment of which has been spread under an instalment arrangement signed before the issuance of the order to commence proceedings; preferential status under this paragraph shall apply to the principal of the debt only and shall be limited to obligations that arose during a period of no more than three years out of the instalment arrangement, and where the instalment arrangement applies to obligations in respect of a longer period – preferential status shall apply to obligations that arose during three years, not necessarily consecutive, at the election of the creditor; for this purpose –

"compulsory payment" – a tax debt to the Tax Authority, insurance contributions within the meaning of the National Insurance Law, including health insurance contributions within the meaning of the National Health Insurance Law, 5754-1994, or a municipal property tax debt, within the meaning of the Municipal Corporations Ordinance [New Version], to a local authority;

"instalment arrangement" – a written arrangement signed by the debtor for the spreading of payment of a debt over a period of at least 12 months.

(b)Where the unencumbered assets of the creditors' fund are insufficient to repay the preferential debts, those debts shall be repaid from the assets subject to a floating charge (security interest).
General Debts§
235.
(a)General debts are debts that are not secured debts, preferential debts or deferred debts.
(b)General debts shall include linkage differentials added under law or agreement up to the date of actual repayment and basic interest added under law or agreement up to the date of issuance of the order to commence proceedings, and where linkage differentials or basic interest have not been prescribed under law or agreement – linkage differentials and linked interest as defined in the Interest and Linkage Law, 5721-1961, as the case may be, shall be added to the general debts.
(c)General debts shall not include a late-payment addition.
(d)(Repealed)
Additional Interest§
236.
(a)Additional interest is any of the following:
(1)interest that has accrued and any other addition, if accrued, to all past debts of the debtor, except deferred debts, from the date of issuance of the order to commence proceedings until their repayment, including interest or any such addition accrued on secured debts that cannot be repaid from the encumbered assets;
(2)a late-payment addition that accrued up to the date of issuance of the order to commence proceedings.
(b)Additional interest shall be repaid in the following order of priority:
(1)interest at the annual rate of linked interest prescribed under section 5c(a) of the Interest and Linkage Law, 5721-1961;
(2)the balance of interest remaining after repayment as referred to in paragraph (1).
Deferred Debts§
237.

The debts listed below are deferred debts and they shall be repaid in the following order of priority:

(1)punitive payments imposed on the debtor;
(2)in respect of a debtor who is a corporation – debts to members of the corporation arising from their being members of the corporation and debts to members of the corporation for which there are grounds for subordinating repayment under section 6(c) of the Companies Law, 5759-1999 or under any other law.

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Section C: Manner of Distribution

Distribution of the Assets of the Creditors' Fund§
238.

Distribution of the assets of the creditors' fund to creditors in respect of a past debt whose proof of debt has been approved and who are not secured creditors shall be made in accordance with the provisions of this Section.

Interim Distributions§
239.
(a)The trustee shall distribute to creditors, from time to time and as soon as practicable, funds that have accumulated in the trustee's hands from the realisation of the assets of the creditors' fund (in this Section – an interim distribution).
(b)Prior to each interim distribution the trustee shall publish a notice thereof in the manner to be prescribed by the Minister.
(c)The trustee shall retain and not distribute in an interim distribution amounts required for any of the following:
(1)payment of a past debt in respect of which a proof of debt has been submitted and has not yet been approved, as well as payment of a past debt in respect of which a proof of debt has not yet been submitted if the trustee is aware of its existence and that there is a reasonable prospect that it will be approved;
(2)funding the expenses of the insolvency proceedings.
(d)A creditor whose proof of debt was approved after an interim distribution shall be paid by the trustee any amount that the creditor did not receive in that distribution, prior to any further distribution.
Final Distribution§
240.
(a)After completing the realisation of all the assets of the creditors' fund that the trustee considers it possible to realise, the trustee shall distribute the balance to the creditors (in this Section – final distribution).
(b)Before the final distribution, the trustee shall notify all persons who have submitted proofs of debt that have not yet been determined and who have not substantiated their claims to his satisfaction, of his intention to make a final distribution, and shall allow them time to substantiate their claims in the notice.
(c)Where the trustee has determined all proofs of debt submitted and the period for filing an appeal against his decisions as referred to in section 215 has elapsed, the trustee shall publish a notice of his intention to make a final distribution; the Minister may prescribe provisions regarding the time and manner of giving the notice under this subsection.
Manner of Effecting Distributions§
241.

The Minister may prescribe provisions regarding the manner of effecting interim distributions and the final distribution.

Debtor's Right to the Balance§
242.

Where assets remain in the creditors' fund after repayment of all debts to the creditors in full and the expenses of the insolvency proceedings, the balance shall be transferred in accordance with these provisions:

(1)in insolvency proceedings of an individual – to the individual;
(2)in insolvency proceedings of a corporation – to the members of the corporation.

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