Is Your Israeli Customer Insolvent? Signs and First Steps for a Foreign Creditor

When an Israeli customer stops paying, the first question is not how to sue. It is whether the company can pay at all. A company that is insolvent changes the order of everything: who gets paid first, what you can still do on your own, and how little time you have to act.

Our firm represents creditors facing unpaid commercial debts and corporate insolvency in Israel. We assess the debtor’s position, the basis for a court application and any security, represent creditors in the proceedings and prepare proofs of debt. Acting on the actual legal position matters: a collection route available today may be restricted once an opening order is made.

What "insolvent" means in practice

Under the Insolvency and Economic Rehabilitation Law, 2018, a company is insolvent when it cannot pay its debts as they fall due, or when its liabilities are greater than its assets. You do not need to prove both. Missed payments, repeated requests for extensions or evidence of unpaid creditors warrant investigation. They are warning signs to assess alongside the financial position, not proof of insolvency on their own.

Check the public records

Our guide on how to check an Israeli company explains the company extract, registered charges, land records and insolvency notices. Run those checks again now. A new charge may affect the assets available to unsecured creditors; a director change alone does not establish insolvency or priority. Compare the records with payment history and evidence of asset transfers.

A judgment and a right to share in an insolvency distribution are different routes. Check the company’s status before choosing the next step.

A creditor can start the process

A creditor can ask the court to open insolvency proceedings against a company. Section 9 does not set a minimum debt for that application, though a creditor whose debt is not yet due must satisfy additional statutory conditions. The applicant must establish insolvency; the section 10 monetary threshold concerns a presumption, not every application. The law helps with a presumption of insolvency if these conditions are met:

• The debt is above a threshold set in the law and updated from time to time. Check the indexed threshold in section 10 on the filing date; do not use an old figure from a demand template.
• You delivered a written demand for payment that said you intend to apply for insolvency proceedings.
• The debt was not paid within 30 days of the demand.
• There is no good-faith dispute about the debt and the company has no right of set-off or other justified basis for not paying it.
• You file with the court within three months of delivering the demand.

The presumption is rebuttable and is not the only way to prove insolvency. A debt that is truly disputed is a poor basis for this route, because a company can answer that it is not insolvent but is simply contesting the invoice. Our firm assesses whether the evidence supports an insolvency application rather than an ordinary claim on the debt. Once proceedings open, they are collective and no longer yours to control.

What happens when proceedings open

When the court issues an order opening proceedings, a statutory stay applies. Individual collection of past debts is stayed, and pre-order attachments on insolvency-estate assets are cancelled, subject to the statutory exception. Secured creditors and holders of other special rights must follow the rules that apply to their rights. A legal proceeding against the company cannot be started or continued without the court’s permission, which is given only for special recorded reasons. Past debts must be dealt with through the statutory process and its applicable exceptions, rather than paid from estate assets through an individual collection race.

File your claim on time

To participate in a distribution for an existing debt, file a proof of debt with the trustee. Under section 210, the ordinary deadline is six months from publication of the opening order. A past debt that arises after the order has a separate deadline: 45 days after it arises or the ordinary deadline, whichever is later. An extension requires circumstances that prevented timely filing and a finding that an extension is just, taking account of the stage of the process. Prepare the contract, invoices, delivery records, interest calculation and security details, then confirm the filing route and supporting documents for the company’s actual case. Our guide on what to do about an unpaid invoice helps build that file.

What to do first

1. Pause new unsecured exposure while your lawyer checks the contract and any supply obligations. Consider advance payment or suitable security for future orders. A unilateral halt can itself breach a contract, and special rules can apply after insolvency proceedings open. Do not destroy a valuable contractual position while trying to limit the debt.
2. Re-run the registry checks and save the results with the date.
3. Put the debt and your claim in one clean file.
4. Decide quickly between a claim, a demand that may support an insolvency application, or waiting for the process to open. Our guide on suing an Israeli company from abroad covers the court route.

Worried that an Israeli customer cannot pay? Contact RNC Group for advice and representation on the collection route, an insolvency application or your claim in an existing proceeding.

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This article is for general information only and does not constitute legal advice. Laws and their application depend on the facts and jurisdiction and may change. Although we aim to keep this information accurate and current, we do not guarantee that it is complete or up to date. The article may contain omissions or errors. Reading this article does not create an attorney-client relationship with RNC Group. Before making a decision or taking action, seek advice from a qualified lawyer in the relevant jurisdiction.