ISRAEL Law and Practice Contributed by: Charles Gottlieb and Osnat Issan, Gottlieb Gera & Co Advocates
In the case of a true operational lease, the aircraft will not be deemed to be property of the lessee and will not be deemed included in the lessee’s insolvency estate. However, in the case of certain finance leases, there is a risk that Israeli courts may find that the retention of the ownership was in fact a disguised pledge and rule that the aircraft is part of the lessee’s insolvency estate and that the lessor is an unsecured creditor. 2.9.6 Risks for a Lender if a Borrower, Guarantor or Security Provider Becomes Insolvent A lender’s actions as a creditor will generally be limited upon the commencement of insolvency proceedings of a borrower, as an automatic moratorium is imposed for the duration of the insolvency proceedings. If the lender is a secured creditor and the insolvent borrower enters into operation by an insolvency trus - tee with a view towards its economic rehabilitation, the lender is barred from realising the asset charged in its favour in a fixed charge and may not perfect a floating charge without the approval of the court. If the lender’s debts are not secured, it will be repaid together with other unsecured creditors on a pro rata basis from those assets that remain in the borrower’s insolvency estate following the repayment of secured debts, the insolvency trustee’s expenses, certain cat - egories of preferred debts, and debts secured by a floating charge. 2.9.7 Imposition of Moratoria in Connection With Insolvency Proceedings Pursuant to the Insolvency Law, upon the initiation of insolvency or rehabilitation proceedings, an automatic moratorium is imposed for the duration of the pro - ceedings. The Insolvency Law provides that proceed - ings shall take place over a period of nine months, which may be extended for additional three-month periods by court order. 2.9.8 Liquidation of Domestic Lessees A domestic lessee may be liquidated or placed into operation by an insolvency trustee by the initiation of insolvency proceedings in accordance with the Insol - vency Law. Insolvency proceedings may be initiated by an application to the court by the insolvent lessee,
its creditor(s) or the Attorney General of the State of Israel. 2.9.9 Ipso Facto Defaults Ipso facto default clauses are not recognised pursu - ant to the Insolvency Law. Termination of leases and repossession of aircraft during a moratorium is subject to the approval of the court, which may be denied even in such cases where the lessor can show that it has suffered performance defaults. 2.9.10 Impact of Domestic Lessees’ Winding-Up In the event that the court orders the winding-up and liquidation of a domestic lessee: • assuming the aircraft is leased to the domestic lessee under a true operational lease, the aircraft remains the property of the lessor; • if the trustee operates the aircraft during the rehabilitation period, the lease rentals due for such period will be deemed to be expenses of the insolvency proceedings, which are granted priority over certain creditors other than secured creditors holding fixed charges; • if the security deposit and the accumulated mainte - nance reserves held by the lessor are held by court to be an asset of the lessor, it shall not be affected by the liquidation of the lessee; and • any due and unpaid amounts of rent and/or main - tenance reserves due for the period prior to the commencement of insolvency proceedings are most likely to be classified as unsecured debt and thus will be repaid to the lessor together with other unsecured creditors on a pro rata basis from those assets that remain in the lessee’s insolvency estate following the repayment of secured debts, the insolvency trustee’s expenses, certain categories of preferred debts, and debts secured by a floating charge. 2.10 Cape Town Convention and Others 2.10.1 Conventions in Force The State of Israel is not a party to the Convention on International Interests in Mobile Equipment and the related Protocol on Matters specific to Aircraft Equip - ment.
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