Personal Guarantees From Israeli Company Owners

A foreign supplier is about to extend credit to an Israeli company. The buyer is new, the company has little history, and your credit team asks for a personal guarantee from the owner. The request is common. What the guarantee actually gives you depends on how it is written and on a few rules in Israel’s Guarantee Law, 1967.

This article covers the core rules. It is general information, not advice on a specific guarantee.

What counts as a guarantee

Under section 1(a) of the Guarantee Law, a guarantee is one person’s undertaking to perform another person’s obligation toward a third party. Section 1(b) allows it to cover all or part of the obligation, existing or future, fixed or open-ended. Section 2 adds that a guarantee only exists for an obligation that is valid in the first place.

Under section 3, a guarantee is created by an agreement between the guarantor and the creditor, or by the guarantor’s undertaking of which notice was given to the creditor. A signed guarantee letter sent to you can therefore create a binding undertaking.

A guarantee is only as strong as its wording. Scope, amount and waivers decide whether it works when you need it.

The guarantor owes no more than the debtor

Section 4(a) provides that a guarantor is not liable for more than the debtor’s obligation, or on harsher terms. Under section 4(b), the guarantor also answers for interest, expenses and damages the debtor is liable for, unless the guarantee shows a different intention. If the guarantee is limited in scope, the guarantor is liable only within that limit. State the covered obligation and any cap clearly.

When a guarantor is released

The statute gives the guarantor several protections that a creditor should know about:

• Reduced obligation: if the guaranteed obligation is reduced by agreement between you and the debtor, or by your waiver, the guarantor is released to the same extent (section 5(a)).
• Other changes: if you and the debtor change the obligation in another way, the guarantor’s liability changes accordingly, but the guarantor may choose to perform without the change or cancel the guarantee if the change is fundamental and harms the guarantor’s rights (section 5).
• Creditor conduct: if the creditor caused the guaranteed obligation not to be performed, the guarantor is released (section 6(a)). If the creditor caused security for the debt to lapse and the guarantor suffered damage, the guarantor is released up to the amount of that damage (section 6(b)).
• Defenses: any defense the debtor has against the creditor also stands for the guarantor. If the claim against the debtor is time-barred, the claim against the guarantor is time-barred too, if it had not expired earlier (section 7).

Practical point: if you agree to extend payment terms or change prices with the buyer, check how that interacts with the guarantee before you sign the change.

Must you go after the company first?

The guarantor and the debtor are liable jointly and severally. But under section 8, a creditor may not demand performance from the guarantor without first demanding it from the debtor, unless one of these applies: the guarantor waived the requirement, an asset-receiver or liquidation order was issued against the debtor, or the debtor died, is outside Israel, or making the demand involves special difficulty.

Many guarantee forms include a waiver of this requirement. If you draft the guarantee, include it clearly. If you receive a guarantee that does not, send the written demand to the company first and keep proof.

Owners of the debtor company are not “individual guarantors”

Israel’s law gives extra protections, such as disclosure duties, to an “individual guarantor” (sections 22 and 27 are examples). But section 19 says that when the debtor is a corporation, a person who is an interested party in the corporation, as defined in the Securities Law, is not treated as an individual guarantor.

For a foreign supplier, this means a guarantee from the owner or senior director of the Israeli buyer is generally governed by the basic rules above, not by the individual-guarantor protections. That does not remove the need for a clear, signed document.

A short checklist before relying on a personal guarantee

• Name the guarantor, the debtor and the guaranteed obligation precisely.
• State the amount or cap and the period covered.
• Include an express waiver of the demand-first requirement, if you want it.
• Keep every change to the supply terms in writing and review its effect on the guarantee.
• Keep a signed original and proof of the demand sent to the debtor.

In our experience, a guarantee fails more often because of a loose description of the guaranteed debt or an undocumented change in terms than because of a gap in the law.

Next step

If you are structuring credit to an Israeli buyer, or need to enforce a guarantee, contact RNC Group with the guarantee, the supply agreement and the payment history, and we will review the position.

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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.