The formative decade of Israel’s reorganization law: 1995-2004

The article analyses closely the major developments that took place between 1995 and 2002, both as a result of legislation and judicial law making. In 1995, the Knesset, the Israeli legislature, enacted a moratorium statute. This statute stays all pending proceedings against a financially distressed corporation which has applied to the court requesting its reorganization through a compromise or arrangement scheme. The moratorium statute influenced significantly this scheme and effectively reshaped it in a reorganization-friendly manner. The article submits that the moratorium statute has effectively transformed the nature of secured creditors’ rights from rights-in-kind to rights-in-value. In addition, the article will demonstrate the relative contribution of both the Supreme Court and the district courts to reorganization law’s development. The Supreme Court established the grand premises for judicial law making in corporate reorganization by holding that the statutory substantive norms which apply in corporate liquidation apply in reorganization as well mutatis mutandis. For their part, the district courts contributed to the law making in two primary aspects of corporate reorganizations: First, by requiring that in reorganization cases a court-appointed trustee shall manage the corporation and negotiate on its behalf with the creditors. Secondly, the courts developed the practice of auctioning the firms undergoing reorganizations as a means for maximizing the return to the creditors.