Practical Guide To International Debt Collection in Israel

Practical Guide

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Israel

Is there a minimum amount to start a legal action?

There is no requirement for a minimum amount in order to initiate a judicial process, either by expedited procedures (if the matter qualifies) or ordinary lawsuit. Nevertheless, the costs of engaging such procedures may challenge the relevance of the debt collection.

Will the amount due condition the type of procedure?

In Israel, alongside the regular judicial process, there are various other routes that may apply to debt collection or recovery, which may result in rather simplified and expedited procedures.

Fast track court proceedings #1 – this route applies to any monetary debt or claim up to roughly €20,000 (75,000 NIS). This route entails strict and procedural guidelines and obligations, and the Court will hold the preliminary hearing within 30 days of the statement of defense. An evidence hearing with oral closing arguments will be held no later than 6 months thereafter (unless it is determined that the matter should be adjudicated in the regular route), and the Court will deliver the judgment within 45 days.

This option is a good solution for simple matters not exceeding €20,000 in debt, it does not require specific or formal documentation as a precondition, and accordingly, it can also be cost-effective concerning the legal fees involved.

Fast track court proceedings #2- a route available for any unlimited specified amount, for which if the creditor has initial documented proof of the debt and/or obligation, they may submit an expedited claim. If the debtor wishes to submit any defense whatsoever, the debtor must obtain permission from the Court (displaying legitimate grounds for defense), and if the Court rejects the application for submitting the defense – the creditor is entitled to immediate judgment for collection. This procedure is determined in one immediate hearing.

The challenge to using this route is that the courts tend to grant permission for submission of defense rather easily, even if the debtor has week arguments, as long as the arguments are not fabricated or baseless altogether.

Fast track proceeding #3- a route according to which, if the creditor possesses adequate documentation, and followed the mandatory pretrial procedures, the creditor may submit a lawsuit/claim directly within the Law Enforcement and Collection System Authority.

Here too, if the debtor wishes to submit any defense whatsoever, the debtor must apply for permission from the Court (displaying legitimate grounds for defense), and if permission is not granted by the Court, the creditor is entitled to immediate collection.

This Procedure has precondition mandatory requirements such as an undisputed specific amount of debt, which is supported by documents the debtor has engaged in actually (such as bearing their signature or similar), invoices, delivery notes, and like documents indicating the debt and relationship between the debtor and the creditor.

This procedure also requires that the debtor directly receive, by notice by registered mail or personal delivery, with a breakdown of the debt and demand of payment prior to collection procedures.

Is it mandatory to send a warning letter before taking legal action to collect a debt?

In Israel, besides what is required by the above-mentioned fast track #3, there are no mandatory requirements for sending a letter of demand or warning prior to legal proceedings for debt collection.

In some cases, it may be advisable to try and avoid the need for legal proceedings, and indeed, in some cases, a demand letter from a domestic law firm will indicate that the creditor "means business" regarding the collection of the debt and that the creditor will not waive the debt due to distance.

A letter of demand may also assist in receiving, in advance, an indication of any possible defense arguments that may rise further on, or even a lack of defense (for instance, a debtor asking only for installments for payments, etc.).

On the other hand, there are times in which it would be preferable to initiate legal proceedings for the purpose of obtaining ex-parte interim measures, or liens, or to avoid other tactical moves the debtor might have in mind.

Letters of demand, like any other procedure, should be considered according to the business culture of the target location, since this may also have considerable implications as to whether or not it is advisable.

What are the best practices for creditors to increase the possibility of recovering the debt?

First and foremost, obviously, a creditor should maintain and provide any and all documented evidence including contracts, invoices, correspondences (including email and any other media), as well as witness statements, etc. to substantiate the debt beyond a doubt, and limit any defense arguments.

It is also advised not to rely solely on automated purchase orders and invoices, and to add to these forms of business engagements, proper contractual documents of at least following email correspondence.

Furthermore, from our experience, sufficient thought should be put in each recovery matter as to the relevant and appropriate steps towards each debtor. Sometimes, there are additional, tactical, or legal measures that may increase the possibility of recovery, such as involving media publication of the debt, attempts of personal liability of managers or shareholders, and perhaps, ex-parte liens or attachments, all of which, can often make a difference.

How can a foreign creditor start a procedure for international debt collection in Israel?

In Israel, a creditor would commonly need the representation of an Israeli lawyer, certified by the Israeli Bar. Theoretically, a creditor may initiate the proceedings without a lawyer. However, this would probably become unrealistic quickly for various and obvious reasons.

The foreign creditor would need to provide the Israeli attorney with an Apostilled power of attorney, and thereafter, the attorney may take action on the creditor's behalf.

Most court proceedings involve court fees or 2.5% of the debt (1.25% to be paid upfront), and there is also a minimum fee in instances of low volume debts.

Which documents are necessary for the debt collection in Israel?

The necessary documents for debt collection in Israel depend on the type of proceeding engaged.

Obviously, the more documents the creditor has, the better, but there isn't a specific demand for certain documentation (with the exception above mentioned for fast track # 3).

In general, it would be best for the creditor to provide documented evidence such as contracts, invoices, delivery certificates, correspondences (including email and any other media), witness statements, etc. to substantiate the debt and limit any defense arguments.

In General, for most expedited procedures, the creditor would need to show written evidence. However, debt collection can also be potentially based on other kinds of evidence, such as witness testimony or alternative media evidence, in a "regular" route procedures, or even in fast track #1 above (limited to debts under €20,000).

What happens after the first demand for payment?

What happens after the first demand for payment, if the creditor chose to issue such a demand, depends much on the outcome of the demand. If the debt is paid, the matter is concluded.

If the debt has not been paid, the creditor would, and should, promptly engage in adequate procedures.

If the creditor chose the fast track of the Law Enforcement and Collection System Authority (assuming the creditor could provide to the mandatory requirements), the creditor will be able to engage the proceedings only after 30 days.

Can interim measures be taken?

Indeed, interim measures may be obtained, and often they are also considered tactically important, not only if solvency is questionable, but also, to get the initial impact that may resolve debt recovery matters during the initial hearing of the interim measure.

Although in Israel, the applicant for interim measures has a considerable burden to prove an actual basis for the need of the interim measure, if this is obtained ex-parte, or even after a hearing with both parties (be it for risk of insolvency of the debtor, or other reasons indicating risk for the recovery), this may have a great impact on the recovery.

Depending on the procedure chosen, the party seeking the interim measure may be required to offer a guarantee large enough to cover possible damages that may be caused to the debtor; nevertheless, it is usually a fair guarantee.

If, for any reason, the recovery was not possible, is there any other action that the creditor could take to write off such debt in its accountancy?

This depends mainly on what is required by the regulations in the creditor’s country and what the creditor would need to show sufficiently with the creditor's tax regime.

It would be possible to provide adequate certification as to all the measures taken in Israel and their outcome either within insolvency procedures or the exhaustion of the procedures through the Israeli Law Enforcement and Collection System Authority.

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