Calcalist – the real estate arena

Attorney Avichai Nissan-Verdi: "The Insolvency Law harms debtors"

The law approved by the Knesset in March will go into effect in nine months, and will probably encourage the creditors to pay off the debtors' apartments. Who will benefit and who will be harmed? The interpretation is up to the court

Udi Shishon 17:52 12.12.18

In collaboration with the real estate arena system

"Social law", "the temple process of rehabilitation over punishment", "a new page for the disadvantaged in society" – these are just some of the sympathetic nicknames that the Insolvency and General Rehabilitation Law, which was approved by the Knesset plenum last March after almost two years of feverish discussions,

has earned. It was even defined as one of the most important moves passed by the current Knesset, and received the blessing of actors from all ends of the political spectrum.

The law, which includes 14 parts and spans hundreds of pages, is intended to comprehensively and thoroughly regulate all insolvency laws for individuals and corporations,

and to replace outdated and archaic legislation that has more than once harmed debtors excessively. The importance of the law is shown by the number of debtors, which is much larger than one might think:

today no less than 700,000 people are in bankruptcy proceedings, many of them have families, and every year more than 15,000 new bankruptcy cases are opened. As far as corporations are concerned, every year about 600-700 liquidation and insolvency cases are opened.

 However, conversations with legal officials show that the reality on the ground is more complex, with the main attention being directed to one section of the new law, the one concerning the protection of the debtor's residential apartment.

This section puts many of the debtors who own an apartment in front of a difficult dilemma: is it better for them to start bankruptcy proceedings now or wait until September, when the new law will come into effect?

The essence of the dilemma is this: until today (and in fact until this September) debtors benefited from the provisions of the Tenant Protection Law, which stated that an apartment owned by a debtor is considered an "occupied" apartment, and therefore its value was on average 30% lower than the value

of an identical apartment in the market – depending in the tenant's expected life expectancy. This provision resulted in creditors many times avoiding the sale of the debtor's apartment, due to the lack of economic viability – which prevented debtors from being thrown onto the street.

However, the approval of the new Insolvency Law effectively canceled the provision of the Tenant Protection Law, and upon its entry into force, a debtor's apartment will no longer be considered an "occupied" apartment. The meaning – it will be possible to sell it at 100% of its value, which will encourage creditors to put the debtors' apartments up for sale.

 "The meaning of the new law may be a real harm to the debtors," says attorney  Avihai Nissan-Verdi , an expert in liquidation and insolvency law and the author of the book "The Laws of Selling Apartments". "The residential apartment is the most sensitive point for the debtor and his family members during bankruptcy.

The risk of realizing the apartment and the loss of the roof lead to a huge struggle in this regard, when the new law actually dramatically changes the calculation of the value of the apartment due to the cancellation of the protections of the Tenant Protection Law.

This does not mean that there are no more protections for the debtor, but the calculations will be different."

חוק חדלות פירעון
Attorney Avichai Nissan-Verdi. The law dramatically changed the calculation of the value of apartments  Photo: Avichai N. Verdi Attorney's Office

.Each is Owed To Its Own Body

 "Until now, there has been a jarring discrimination between those who fall into insolvency who have a right registered in the tabu and therefore enjoy protection regardless of the value of the apartment,

and those who do not have a right registered in the tabu," says the chairman of the Knesset's Constitution, Law and Justice Committee, MK Nissan Salominski. which accompanied the bill.

"Now the focus will be primarily on the economic status of the debtor. For example, the question will be examined as to whether the debtor's place of residence corresponds to his basic needs, considering his personal circumstances.

The uncertainty has also been reduced, so that a default of four years of alternative housing has been established, and in some cases also Finding a replacement residence for a debtor for life. Another issue we dealt with relates to the financial return on selling a house, i.e.

whether the amount received will actually help cover the debt or is it just a drop in the ocean. It should be understood that a dramatic act like selling a house does not have to be an automatic procedure, but one that is only relevant when there is in which economic viability".

In the general context of the law, Salominski adopts the prevailing line and claims that "this is a first-rate socio-economic process, in which much and complex work has been invested.

This is actually the largest law approved by the Knesset in the last 15-20 years. The main goal is to create a single legislative framework that will apply on both individuals and corporations, and regulating an area that has been breached.

The law seeks to make a change in consciousness, to shatter the negative stigma towards those who fall into insolvency and to deal with a difficult situation in a more humane and responsible manner.

חוק חדלות פירעוןChairman of the Constitution Committee, MK Nissan Salominski. 700 thousand people are bankrupt  Photo: Alex Kolomoisky

"The law places economic rehabilitation as a central value.

It seeks to help a person or company that has reached insolvency to rehabilitate and get back on track, and at the same time treats in a strict manner those who reached this situation due to bad faith or abuse of the insolvency procedures themselves."

 Nissan-Verdi agrees with the main points: "The law does place the economic rehabilitation, both of the individual and of the corporation, as a supreme value, while working to break the negative stigma towards those who find themselves insolvent and their relatives.

In addition, it gives the good faith of the debtor significant weight, and a variety the factors that deal with defaults, for example by giving enormous powers to the official receiver.

However, the tests established by the new law are much more complex than those that existed until now, and their interpretation will occupy the courts a lot in the future.",7340,L-3751932,00.html


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