ISRAEL Law and Practice Contributed by: Shiri Shaham, Yuval Shalheveth, Aviad Lachmanovitch and Asher Bichoonski, Arnon, Tadmor-Levy
with funding from the Israel Innovation Authority (IIA) require foreign lenders to undertake that enforcement will occur in Israel and be subject to the relevant law. Note that the receipt of such security as part of a cred- it transaction may raise questions regarding licence requirements which may apply to the credit transac- tion. 3.3 Restrictions and Controls on Foreign Currency Exchange There are no restrictions or controls over the use of foreign currency and its exchange, except for restric- tions relating to several countries declared as “enemy countries”. AML/CFT controls apply, among other things, to currency exchange and cross-border pay- ments. The provision of foreign exchange services in Israel is subject to licensing requirements, with certain exemptions. 3.4 Restrictions on the Borrower’s Use of Proceeds There are no restrictions on the use of proceeds by borrowers, except for the use of proceeds for illegal purposes. Within the limitation on the use of cash exceeding cer- tain amounts in transactions, there may be limitations on the acceptance of loans in cash (subject to excep- tions). The use of the proceeds may be subject to AML reporting by relevant regulated service providers. 3.5 Agent and Trust Concepts The concepts of trust and agency are recognised under Israeli law, and there is therefore no need to use alternative structures. Trusts are not considered legal entities in Israel, and the actions of a trustee are performed under the name of the trustee. Nonetheless, since the concept of a trust is recognised, the actions of the trustee are not attributed to the trustee’s personal affairs and are separated from such personal affairs. The Israeli Tax Ordinance recognises the concept of trusts and sets forth a tax regime applicable to trusts. The said tax regime distinguishes between the taxa- tion of creators, trustees and beneficiaries which are
residents of Israel or foreign residents. The Tax Ordi- nance also imposes reporting duties. 3.6 Loan Transfer Mechanisms Loans in Israel can generally be freely assigned with- out requiring the consent of the borrower, but subject to providing notice to the borrower, unless assignabil- ity is restricted by the loan documents or by law, par- ticularly for loans secured by regulated assets or those requiring a permit. Although such assignment does not necessarily require the lender to include a specific contractual arrangement within the loan documents, it is advisable to have a clear contractual provision that entitles the lender to do so (most lenders indeed add such contractual provisions). Certain regulated entities have specific restrictions on the assignment of loans: banks are subject to certain requirements when assigning mortgage-backed debts if the recipient is not a bank or insurance company. The disclosure of information about the debt and the debtor in connection with the assignment may require the consent of the debtor, but such consent can be, and is often, included in the credit documents, sub- ject to compliance with privacy protection regulations. Typical contractual provisions usually included in loan agreements normally address this matter. Upon assignment of a loan, any collateral securing the loan is also transferred by operation of law, though a change in the registration may be required to perfect the security interest in favour of the assignee. When perfection of the security interest requires registration with the relevant registry (eg, Registrar of Companies, Pledge Registry, and Land Registry), the assignment of such security will require registration as well. 3.7 Debt Buyback Debt buybacks by the borrower or sponsor are per- missible under Israeli law. With respect to mortgage-backed loans and loans secured by a pledge over assets or rights, the right of the borrower to buyback is set forth in the law and cannot be waived. In certain cases (eg, buyback of mortgage-backed loans provided by banks), there are
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