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Insolvency Law — Solutions for Businesses in Debt Due to the Coronavirus Outbreak

אודליה משולמי

אודליה משולמי

The financial damage to the economy in light of the Coronavirus outbreak has caused many businesses to be plunged into enormous debt. In this article, which was written on 29 March 2020, Attorney Odelia Meshulami – who specializes in insolvency law (formerly bankruptcy) – will explain the possible solutions; such as creditors arrangements and beginning insolvency proceedings.

The office of Cohen, Decker, Pex & Brosh, located in Jerusalem and Petach Tikva, specializes in bankruptcy and insolvency law. We provide our clients with comprehensive answers and legal assistance even during these trying times. Our office represents clients in matters of insolvency and financial recovery in all courts, including in writ of execution proceedings.

The damage caused by the Coronavirus is yet to be fully measured; yet even now many businesses are finding themselves facing a new reality. The restrictions imposed on economic activity have led to many businesses reducing their productivity. Some businesses are practically unable to operate at this point; hotels, resorts, clothing stores, stores selling leisure products, etc. Reducing or discontinuing business operations due to present circumstances has led to lower revenues relative to ongoing expenses. The painful result is the accumulation of debts, sometimes in the sum of hundreds of thousands or even millions of shekels.

Possible Courses of Action for Businesses Caught in Debt in the Wake of the Outbreak

Solutions such as taking out loans, including state guaranteed loans, can sometimes help. However, some businesses were already in debt even before the outbreak began. For these businesses, loans will not necessarily be sufficient. It is important for these businesses to know that there are other available solutions other than taking out loans; solutions which originate in insolvency laws. These laws deal with those cases in which businesses or individuals are not able to fulfill their financial obligations.

The Insolvency Law, which was enacted in September 2019, ushered in many innovations into this field. Apart from creating uniformity between debtors, whether they be corporations or private persons, the law constituted a change in perception regarding debtors. If, in the past, the legal perception regarded them as irresponsible and even lacking in integrity, the law is now based on a greater understanding of the complexity of modern life, which can lead any person or business into debts that they are unable to repay. The law includes tools that are designed to assist the financial recovery of the debtors, such as shortening the duration of the hearing, making it more streamlined, as well as changing the arrangement and distributing the debt repayments to creditors. You can find additional information on the new Insolvency Law in the following article on our website.

The Insolvency Law provides Solutions for Businesses in Debt Due to the Coronavirus Outbreak

Solutions for Businesses in Debt Due to the Coronavirus

Creditors Arrangement; for businesses that are able to continue to operate at this time, a possible solution is reaching a settlement with the creditors in regards to repayment. A creditors arrangement may often result from direct discussion with the creditors, and include a redistribution of debt payments, even absolving some of them. Creditors arrangements can sometimes be reached outside of court. In any case, it is very advisable to be assisted and accompanied by an experienced lawyer, so as to reach an optimal settlement and to avoid taking actions that violate the law (such as an unfair creditors preference).

When there is opposition to the settlement from one of the creditors, it is possible to request that the court settle the arrangement. The Insolvency Law regulates the manner of approval of the debt through votes that are taken by the creditors. In general, the consent of the majority of the creditors is required – those who hold at least 75% of the total debt. However, sometimes the court may force a settlement by a small majority.

Request to begin insolvency proceedings; for businesses whose debts are of a severe nature that do not permit them to continue operating independently, there is the possibility of going to the court to request to start insolvency proceedings. The court will consider whether or not to grant an order to begin these proceedings. Once this order is granted, the businesses, along with their debts, are frozen and their management is turned over to a trustee appointed by the court. During this period, an opportunity is given to restore the business and reach a creditors arrangement. The employees of the business will be entitled to benefits during this period, in accordance with the National Insurance Law.

Contact Our Law Firm — We Specialize in the Field of Insolvency / Bankruptcy

The legal solutions we presented above are at the cutting edge of solutions for businesses in debt due to the Coronavirus outbreak. If your business is in debt, the law office of Cohen, Decker, Pex & Brosh will be happy to assist you. You can contact us by phone or by mail through the numbers and email address listed below.              

Solutions for Businesses in Debt Due to the Coronavirus



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