ISRAEL Law and Practice Contributed by: Shiri Shaham, Yuval Shalheveth, Aviad Lachmanovitch and Asher Bichoonski, Arnon, Tadmor-Levy
based on the legal “presumption of sharing” among married couples. 5.6 Release of Typical Forms of Security Under the Pledge Law 1967, when the secured debt is fully repaid, the pledge is automatically released. Where the pledge was perfected by way of registra- tion, to evidence the release of the pledge and to cause deletion of the pledge from the registry, a stand- ard discharge notice must be filed in Hebrew with the Companies Registry (for companies) or the Pledges Registry (for partnerships or individuals). Assets which were deposited with the creditor should be returned. 5.7 Rules Governing the Priority of Competing Security Interests Priority among charges of the same ranking is gener- ally determined by the time of creation or registration. Upon insolvency of the debtor, fixed charges take precedence over floating charges and statutory pre- ferred creditors, while floating charges rank after the statutory creditors and before the general unsecured creditors. Contractual subordination is possible and can be used to vary priority among lenders. Such provisions survive and are held valid upon insolvency of the bor- rower, but do not affect the rankings of other creditors who are not party to the subordination arrangements. Pari-passu arrangements are valid in the relationships of the creditors which are parties to such arrange- ments. 5.8 Priming Liens Where the asset in question is a tangible asset, the creditor who rightfully possessed the asset at the com- mencement of the insolvency proceedings may have a possessory lien, and its debt may have priority over a secured creditor holding security interest on the same asset. An example is a contractor that holds the asset for the purpose of its repair (eg, a car or machinery). There is also a possessory lien over amounts due to a party under an agreement that was breached, up to the amount of damages caused by such breach.
In addition, Israeli law recognises the right of set-off, which applies to solvent entities as well as insolvent ones. For solvent entities, the right of set-off usu- ally applies to any mutual debts relating to the same transaction or agreement, and also to mutual debts which are not connected to the same transaction or agreement, if such mutual debts are in fixed amounts and are not based on appraisal/estimation. When one of the parties becomes insolvent, the law specifies conditions for the ability of a creditor to offset mutual debts. Subject to these conditions, such right of offset precedes the rights of other creditors. The tax authorities have a statutory preference over secured creditors holding security interests on real estate assets with respect to certain real estate taxes. 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders Lenders may enforce collateral upon the occurrence of “trigger events” specified in the security documents. Outside of insolvency, enforcement is typically carried out through the courts or the execution office, often involving a receiver and public auction. In insolvency, the court decides whether to pursue rehabilitation or liquidation, with possible moratoria on enforcement during rehabilitation (subject to adequate protection for the secured creditor). Fixed or floating charge holders may enforce security during a moratorium if adequate protection cannot be guaranteed or if enforcement should not jeopardise the arrangement. In liquidation, secured creditors are not subject to the moratorium. Self-enforcement without judicial process is not per- mitted, except that in non-insolvency scenarios, the debtor may agree to self-enforcement after the due date of the secured debt. Consent granted before such date is not valid. An exception to this restriction is that banks and insti- tutional lenders licensed in Israel that hold tradeable securities as collateral may independently enforce the pledge by way of selling such securities.
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