Debt collection in Israel

Debt collection in Israel begins with a legal and practical assessment of the debtor, the documents confirming the debt and the most realistic recovery route. At this stage, it is important to identify whether the debtor is an Israeli company, an individual, a branch, a related entity or a foreign debtor with assets or business activity in Israel. For an Israeli company, the preliminary review should include its registered details, company number, current status, address, available corporate information and possible charges or liens. If real estate may be relevant for recovery, information from the Israeli land registration system may also be important for assessing asset value and enforcement prospects.

The analysis should also cover the debtor’s line of business, payment history, pending court cases, existing judgments, enforcement proceedings, insolvency indicators, possible objections to the debt and the quality of the creditor’s evidence. In commercial cases, the creditor should organize the contract, invoices, delivery and acceptance documents, correspondence, account statements, acknowledgements of debt, guarantees, security documents and information showing the correct legal identity of the debtor. This assessment determines whether the creditor should start with lawful out-of-court collection, file a court claim, use a fixed-sum enforcement route, enforce an existing judgment, apply for recognition of a foreign judgment or consider insolvency-related measures.

If the debtor has no active court case or unpaid judgment and continues to conduct business, the creditor may first use out-of-court debt collection in Israel. This stage is suitable where the debtor can be contacted, the debt is documented and there is a realistic possibility of obtaining voluntary payment, a settlement agreement, a payment schedule, return of goods, transfer of the debt to a third party, security for the debt or another commercially acceptable solution.

Out-of-court communication should begin with a clear written demand and should be documented from the first contact with the debtor. Communication may be conducted by mail, email, phone or electronic messages, depending on the available contact details and the commercial relationship between the parties. The purpose of this stage is to establish contact with the persons who can make payment decisions, record the debtor’s response, preserve evidence of the demand and prepare the file for the next legal step if voluntary payment is not achieved.

If out-of-court collection does not lead to payment, or if the initial analysis shows that negotiation is unsuitable because the debt is disputed, the debtor is avoiding contact, assets may be at risk or limitation issues are approaching, the creditor should proceed to the appropriate court, enforcement or insolvency route.

Before initiating judicial collection, the creditor should assess the limitation period for debt collection in Israel. For most monetary claims that do not relate to land, the general limitation period is 7 years from the date on which the cause of action arose. In commercial matters, contractual limitation clauses may also be relevant, depending on the wording of the agreement, the nature of the claim and the legal relationship between the parties.

The consequences of missing the limitation period are applied by the court only if the defendant raises the limitation defence at the beginning of the proceedings. If the defendant acknowledges the creditor’s right in writing or before the court, either during or after the limitation period, the limitation period begins again from the date of the acknowledgement. A partial performance of the right may also be treated as an acknowledgement for this purpose.

Israeli law provides several routes for judicial debt collection in Israel, including ordinary court proceedings, simplified proceedings and certain fixed-sum claims that may be brought through the enforcement system. The correct route depends on the amount of the debt, the quality of the documents, whether the claim is disputed, whether the debtor can be properly served and whether the creditor already has an enforceable title.

Ordinary judicial proceedings begin with the filing of a statement of claim. The defendant must file a response within sixty days from the date of service of the statement of claim, and the court may extend this period if it considers that there are grounds for doing so. In a monetary claim, the creditor should prepare the claim so that the amount, contractual basis, due date, evidence of performance and debtor’s default are clear from the filed documents. According to the official Israeli court fee schedule, a claim for a fixed sum of money may involve a court fee calculated as a percentage of the amount claimed at the time of filing.

Within thirty days from the date of service of the last procedural document, the parties have to hold a preliminary discussion. The purpose of the preliminary discussion is to ensure that the parties are prepared for the hearing, clarify the issues in dispute through mutual disclosure and full transparency, allow the parties to prepare their evidence and consider settlement through an alternative dispute resolution mechanism.

During the preliminary discussion, the parties shall provide access to the necessary documents and answer questions that are important for clarifying the disputed issues and narrowing the differences between them, acting with maximum transparency. Upon completion of the preliminary discussion and no later than twenty days before the date of the first preliminary hearing, the parties shall file a report on the preliminary discussion conducted and attach to it the necessary documents presented during the preliminary discussion; in the absence of agreement on a joint report, each party shall file the said form in its own name. If a party fails to comply with these requirements in whole or in part without good cause, the court shall impose on it the costs in favor of the opposing party or the state.

After receiving the response to the claim or after the time limit for filing the response has expired, the court will schedule a preparatory hearing. As a rule, a preparatory hearing should not exceed two hearings in a magistrate’s court and three hearings in a district court. At the preparatory hearing, the court establishes the order of the case, including dates for hearing evidence and presenting arguments, the duration of testimony, the time limits for questioning and the duration of each party’s speeches.

Following the final preparatory hearing, the case will be heard within the time frame determined by the court, during which the parties present their arguments and evidence. If the defendant fails to appear at the hearing, the plaintiff may prove the claim and obtain a judgment based on the evidence presented. Upon completion of the hearing, the court will render a decision as soon as possible, taking into account the volume of written and oral evidence and the complexity of the case. The trial court must render a decision no later than ninety days after the completion of the hearing.

For documented fixed-sum debts, the creditor should also consider whether the claim qualifies for a claim for a specified amount through the Enforcement and Collection Authority. This route may be relevant where the debt arises from a contract, a written obligation or another legally defined obligation to pay a fixed amount, and the amount does not exceed NIS 75,000. It is especially useful when the creditor has clear written evidence of the debt, such as a signed agreement, invoices, acknowledgements, account statements, checks, promissory notes or other documents showing the exact amount due.

A simplified trial is used for cases in which the amount of the debt does not exceed NIS 75,000. The case must be heard within a shorter time frame: 1) The response to the claim is filed within forty-five days from the date of service of the claim on the defendant; 2) The date of the preliminary hearing must not exceed ninety days from the date of filing the last response to the claim, and only one preliminary hearing will be held; 3) A date for the hearing must be set within six months from the date of filing the response to the claim; 4) The hearing of the claim must be completed within one day; 5) The decision on the case must be rendered within 14 days after the completion of the hearing.

The practical choice between a court simplified trial and a specified-amount enforcement route depends on the documents, the debtor’s likely objections, service issues and whether the creditor needs a full judicial examination of the dispute or can proceed on the basis of a clear written monetary obligation.

The decision of the Magistrates’ Court may be appealed to the District Court, and the decision of the District Court may be appealed to the Supreme Court of Israel. The appeal period is 60 days from the date of the decision. Filing an appeal does not suspend the execution of the decision being appealed. However, the court may order a stay of execution of the decision it has rendered under the conditions it deems appropriate.

For an international creditor, a separate route may arise where the creditor already has a foreign court judgment against a debtor or assets located in Israel. In this situation, recognition and enforcement of a foreign judgment in Israel is governed mainly by the Foreign Judgments Enforcement Law, 1958. A foreign judgment may be declared enforceable in Israel if the statutory conditions are met, including jurisdiction of the foreign court under the law of the state of origin, finality of the judgment, enforceability of the judgment in the state where it was issued, compatibility with Israeli public policy and reciprocity regarding enforcement of Israeli judgments. An application for enforcement of a foreign judgment is generally filed within five years from the date on which the foreign judgment was given, unless a different period applies between Israel and the state of origin or special circumstances justify a delay.

After a foreign judgment is declared enforceable, it has the effect of a judgment validly given in Israel for execution purposes. This allows the creditor to move from the recognition stage to practical enforcement against assets located in Israel. In cross-border debt cases, this route is important where the creditor has already obtained a final judgment abroad and the debtor’s bank accounts, securities, real estate, shares or business activity are connected with Israel.

After an Israeli judgment has entered into legal force, or after a foreign judgment has been declared enforceable in Israel, the creditor must initiate enforcement proceedings before the Enforcement and Collection Authority. A judgment may be subject to a limitation defence after 25 years if the creditor has taken no action to advance its performance. Within the framework of enforcement, the creditor’s claims may be satisfied by seizing and writing off funds from the debtor’s accounts, seizing movable and immovable property and selling it, seizing securities, and seizing company shares or other attachable rights of the debtor.

If the debtor shows signs of insolvency, then insolvency proceedings in Israel should be considered as a separate recovery route. According to the Israeli Insolvency and Economic Rehabilitation Law, insolvency is a financial situation in which the debtor is unable to pay debts on time, regardless of whether they are due or not, or a situation in which the debtor’s obligations exceed the value of the debtor’s assets. A creditor may initiate this procedure where the debt exceeds the statutory threshold applicable at the filing date and the debtor has not paid the debt within 30 days after receiving the corresponding demand from the creditor.

Insolvency is especially important where ordinary enforcement is unlikely to satisfy the creditor’s claim because the debtor has no sufficient attachable assets, has stopped paying debts, has transferred assets, or appears to prefer some creditors over others. At this stage, if the debtor’s assets are insufficient to fully satisfy the creditors’ claims, it is possible to challenge and cancel transactions made with the intent to harm creditors or transactions that improperly reduce the liquidation estate.

Among such transactions, the following should be highlighted: 1) a transaction concluded within two years prior to the opening of insolvency proceedings with the purpose of transferring the debtor’s assets without proper compensation from the debtor’s counterparty, provided that the debtor was insolvent at the time of the transaction or became insolvent as a result of such transaction; 2) transactions aimed at concealing the debtor’s property concluded within seven years prior to the opening of insolvency proceedings; 3) transactions aimed at providing an advantage to one creditor over others concluded within three months prior to the opening of insolvency proceedings.

As a result of cancellation of such transactions, it is possible to return to the debtor what was lost through those transactions and thereby increase the liquidation estate for satisfaction of creditors’ claims and coverage of the costs of the insolvency procedure. For a creditor, this means that bankruptcy and insolvency analysis may be relevant not only after unsuccessful enforcement, but also at an earlier stage where asset transfers, preferential payments or other suspicious transactions affect the prospects of recovery.

If you need support with international debt collection in Israel, Grandliga can assist at every stage of the recovery process: debtor assessment, document review, out-of-court communication, settlement negotiations, preparation of a court strategy, fixed-sum claims, ordinary or simplified court proceedings, recognition and enforcement of foreign judgments, enforcement proceedings and insolvency-related recovery measures. The appropriate strategy is selected according to the documents, debtor status, available assets, limitation issues and the procedural stage of the claim.

29.10.2024

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