Legal Updates

A holder of an asset of a debtor who receives a foreclosure order on such asset and act to circumvent it may be personally liable for the debt of the debtor

January 29, 2020

A Kibbutz was assisted by a consulting company and it was explicitly agreed that payment would be made by bank transfer or bank check to an escrow agent. The shareholder of the consulting company owed money to a businessman who, in a proceeding against him, issued a foreclosure orders against the escrow agent for the payments from the kibbutz. The kibbutz was notified of the foreclosure and therefore signed a settlement agreement with the consulting company according to which payment will be made, despite the stipulation in the agreement, by a transferable cash check against a discount.
The Court held that the kibbutz is liable towards the businessman due to circumvention of the foreclosure order. The purpose of a foreclosure order is to "put a hand" on the debtor's assets so that the creditor may collect the debt and by establishing a legal barrier preventing the holder of the assets from taking any action on the asset which would frustrate the possibility of repaying the debt. If the holder receives notice of the foreclosure and ignores it, it is personally liable for the debt of the debtor. If the holder has doubt about the meaning of the order it may move the Court for instructions. Here, the order was not against the kibbutz but it knew that the foreclosure was on money indebted to the consulting company and acted in lack of good faith to circumvent the foreclosure order while receiving consideration for it. Thus, the kibbutz is personally liable for the debt.