Legal Updates

Insolvency proceedings will not be initiated against a company that can be rehabilitated

October 14, 2021

The Israeli oil refineries (Bazan Ltd.) has entered a state of insolvency and negotiated with its bondholders who constitute 99% of its creditors for the purpose of rehabilitating the company. In parallel, a creditor of the company with a debt in the amount of ILS 615,000 filed a motion to initiate insolvency proceedings against the company.

The Court denied the motion. Israeli Law establishes a default whereby when a company meets the definition of "insolvency" under law, a motion to initiate proceedings against such company should be approved automatically. In spite of that, the law expressly recognizes an exception which confers discretion not to grant such motion, if initiating insolvency proceedings would harm the possibility of the company’s economic rehabilitation. Here, the bondholders, who are the dominant creditors of the company, are operating with the company in order to both elevate the value of their shares and keep the company active, while granting the motion may result in a low realization value. On the other hand, the debt of the creditor who filed the motion is negligible in a manner that even if the motion is granted, it may not be able to collect its debt. Therefore, the motion for initiating insolvency proceedings was denied.