Liquidating an insolvent company: who applies, where, and the order of payment
Since September 2019 a company that cannot pay its debts is dealt with under the Insolvency and Economic Rehabilitation Law, before the District Court and the Commissioner. This guide covers who may apply, the debt threshold, the presumptions of insolvency, and the order in which creditors are paid.
“Since 2019 this is no longer only liquidation. It is a process whose declared purpose includes rehabilitation.”
Adv. Erez Sapir
When a company is treated as insolvent
Insolvency is an economic state in which a debtor cannot pay its debts as they fall due, or in which its liabilities exceed the value of its assets. Either one is enough.
That definition is the starting point of the Insolvency and Economic Rehabilitation Law, which came into force in September 2019 and replaced the Bankruptcy Ordinance and the liquidation chapters of the Companies Ordinance. Since then a company that cannot meet its debts is not wound up before the Registrar of Companies but handled on an entirely separate track.
That distinction determines everything: which forum is approached, who runs the process, and the order in which creditors are paid.
Which forum, and who runs it
Jurisdiction over the insolvency of a corporation lies with the District Court in whose district the corporation is registered or in which its principal place of business is located.
The process opens with an order to commence proceedings, and two bodies operate alongside it: the Commissioner of Insolvency Proceedings, the regulator of the field, and the trustee, the officeholder who runs the corporation in practice. The Commissioner recommends between three and five candidates for the trustee role from an approved list.
This is a structural change and not merely a change of names. Before 2019 the picture was more dispersed, and today a single central body supervises both the proceedings and the officeholders.
Who may apply
An application for an order to commence proceedings may be filed by one of three: the corporation itself, a creditor of the corporation, or the Attorney General.
Each route has conditions of its own. A corporation applying in respect of itself must have total debts exceeding a minimum threshold set by the law. A creditor faces no such threshold, and must instead 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 for thirty days. 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 threshold for a corporation applying in respect of itself stands at 29,487.18 shekels, and the amount in the principal presumption for a creditor stands at 88,461.56 shekels.
The fact that the corporation itself may apply is easy to miss. An early, self-initiated application opens options that do not exist once a creditor moves first.
Four presumptions of insolvency
Insolvency is not proved in a vacuum. The law sets out circumstances that raise a presumption, among them:
- a demand for payment served on the corporation and not met within thirty days
- the appointment of a receiver over most or all of the corporation's assets
- a judgment given against the corporation and not satisfied within thirty days
- a demand of the Tax Authority not met as provided by statute
A creditor relying on a demand for payment also has a timetable: the application is filed within three months of service of the demand. In addition, a creditor may apply where the debt falls due within six months and the debtor cannot pay it.
What the trustee does
The trustee does not merely realise assets. The role includes deciding on proofs of debt, managing the assets of the estate, and, as the court directs, rehabilitating the corporation or liquidating it and distributing its assets.
Those last two options are the heart of the difference between this statute and its predecessor. Liquidation is not the only outcome, and economic rehabilitation is a legitimate track the law places beside it, and indeed names itself after.
Some of the trustee's actions require the court's approval, among them representation in legal proceedings, engaging professional assistants, paying certain debts and material settlements.
The order of payment: who is paid first
Where the corporation's assets do not cover everyone, the question is not who is right but who comes first. The law sets a hierarchy:
- the costs of the proceedings and the officeholders' fees
- preferential debts, among them employee wage debts
- general debts, meaning the remaining unsecured creditors
- deferred debts, paid last if anything remains
The preferential portion of an employee wage debt is subject to a ceiling fixed in law, which changes from time to time. An employee or an employer wanting to know what is actually available will check it against the current text.
A secured creditor holding a charge over a specific asset does not sit in that hierarchy in the same way, and the security is examined separately.
What this is not: voluntary liquidation
The common confusion is between two processes that sound alike and are not.
A solvent company seeking to close is wound up under the Companies Law, before the Registrar of Companies, on the basis of a declaration of solvency by the directors and a special resolution of the general meeting. There is no court there and no Commissioner.
An insolvent company cannot sign such a declaration, so that route is closed to it. Trying to close a company with debts through a route designed for a company without debts does not save time; it produces a statement that is not correct.
If the company is under cash flow pressure and you are unsure which side of the line it sits on, that is precisely the point at which to find out, before a creditor moves first.
Questions and answers on insolvent liquidation
Does a creditor need to meet a debt threshold?
Which court hears the application?
Can the company itself start the process?
I served a demand for payment and was not paid. When can I apply?
The company owes wages. When are employees paid?
Is liquidation the only outcome?
All department pages
Business support, incorporation and licensing · Partnerships and non-profits · Shareholders and corporate governance
Legal support for businessesChoosing a business structureSetting up a limited companyBusiness licensingRegistered and unregistered partnershipsPartnership agreementRegistering a non-profitCorporate governancePersonal liability of officersShareholder rights and dutiesMinority shareholder oppressionPiercing the corporate veilThe agency problemPoison pill provisionsContracts and transactions · Liquidation, insolvency and debt collection
Non-disclosure agreementAgency agreementFranchise agreementRaising capital with a SAFEDue diligence before a purchaseVoluntary liquidation of a companyExpedited voluntary liquidationLiquidating an insolvent companyClawing back gifts in insolvencyDebt collection and creditor representationPersonal guaranteesUnder cash flow pressure, or has a creditor already moved?
We will look at whether this is insolvency, who is likely to apply first, and whether economic rehabilitation is a realistic track.