Debt collection and creditor representation: what actually decides recovery
This guide covers when to move from reminders to action, the difference between the enforcement track and litigation, the debt threshold that lets a creditor open insolvency proceedings, and the order of payment that decides who is paid first.
“A secured creditor and an ordinary creditor are not in the same line in the order of payment, nor in the same bargaining position.”
Adv. Erez Sapir
When a debt becomes a collection file
Most business debts do not begin as a dispute. They begin as an unpaid invoice, a returned cheque or an agreement the other side stopped honouring, and the decision when to move from reminders to legal action is usually commercial rather than legal.
Three considerations tend to decide it: the size of the debt against the cost of the process, the financial strength of the debtor, and whether a security or a guarantee exists to be enforced.
The third is the most important of them, because a judgment against a debtor with no assets is worth no more than the paper it is written on.
Two tracks of action
Broadly, two tracks stand open against a debtor, and the choice depends on the document the creditor holds.
- The enforcement track. Open to a creditor holding a judgment, a promissory note or a returned cheque. It is relatively fast and does not require the debt itself to be established again.
- The litigation track. Required where the debt is disputed or where the creditor holds no enforceable document. Here the facts and the law are examined before collection is reached at all.
On both tracks time works against the creditor. As it passes the prospects of recovery fall and the debtor tends to accumulate further creditors competing for the same assets.
When the debtor is a company that cannot pay
If the debtor is not in a passing difficulty but simply cannot pay its debts, the picture changes. Insolvency is a state in which a debtor cannot pay its debts as they fall due, or in which its liabilities exceed the value of its assets.
In that situation a creditor may apply for an order to commence proceedings under the Insolvency and Economic Rehabilitation Law. Jurisdiction over a corporation lies with the District Court, and the process runs before the Commissioner of Insolvency Proceedings and a trustee appointed to the role.
This is not a routine step. It takes the debt out of the individual race between creditors and places it into a collective distribution under a fixed order.
The presumptions and the deadlines a creditor should know
A creditor's application to commence proceedings is not conditioned on a fixed debt threshold. The creditor must establish that the corporation is insolvent, for which the law provides presumptions. The principal presumption is a demand for payment of a debt exceeding an amount set by the law, left unpaid. A minimum threshold does apply when the corporation itself applies. Several creditors may aggregate their debts, and so may several debts owed to the same creditor.
The amounts in the law are index linked and updated from time to time. As of Notice no. 2 of 2026, the amount in the presumption stands at 88,461.56 shekels, and the threshold for a corporation applying in respect of itself stands at 29,487.18 shekels.
Alongside the presumption runs a timetable. A demand for payment served and not met within thirty days raises a presumption of insolvency, and the application itself is filed within three months of service of the demand. A creditor may also apply where the debt falls due within six months and the debtor cannot pay it.
Further presumptions: a judgment not satisfied within thirty days, the appointment of a receiver over most of the corporation's assets, and a demand of the Tax Authority left unmet.
The order of payment between creditors
Where the assets do not cover everyone, the money is distributed by hierarchy and not by order of approach:
- the costs of the proceedings and the officeholders' fees
- preferential debts, among them employee wage debts
- general debts, meaning the unsecured creditors
- deferred debts
A secured creditor holding a registered charge over a specific asset stands in a different position, and the security is examined separately from that hierarchy. This is why registering a charge in real time is worth more than any letter of demand.
The preferential portion of an employee wage debt is subject to a ceiling fixed in law, updated from time to time.
The personal guarantee as the key to recovery
Where the debtor is a company, separate legal personality blocks the route to the shareholders' pockets. Two paths get around that block, and each is examined separately.
The first is a personal guarantee signed in advance. It does not circumvent the block so much as render it irrelevant, because the guarantor is liable under an undertaking of their own and not by virtue of being a shareholder.
The second is piercing the corporate veil, an exceptional remedy the court applies in defined circumstances and not as a routine collection method.
It follows that the first question in any collection file against a company is what was signed at the outset, not what was said at the end.
What to do while the debt is still fresh
The gap between a successful and a failed collection file is usually decided in the first weeks. Gathering the documents, checking whether a guarantee or a security exists, and an early check of the debtor's position all change the prospects of recovery.
If money is owed to you and you are unsure which track to open, we would be glad to review the documents and say what is realistically recoverable and what should be done first.
Questions and answers on debt collection
The debtor is not paying. Where do we start?
Does a creditor need a minimum debt to open insolvency proceedings against a company?
I served a demand for payment. How long must I wait?
The debtor company is in liquidation. Is there any chance of recovery?
Can we collect from the shareholders?
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We will review the documents, check whether a guarantee or security exists, and say what is realistically recoverable and on which track.