Clawing back a gift in insolvency: when an asset given away returns to the creditors
When a person or a company enters insolvency proceedings, the trustee looks not only at what the debtor owns today but at what the debtor used to own and where it went. An asset transferred as a gift, or at a low price, in the years before the proceedings can be brought back into the insolvency estate. The law sets out when, how many years back, and what the recipient can raise in defence.
“A gift given when the debts already exceeded the assets does not remain a gift. It becomes a legal question.”
Adv. Erez Sapir
What "reversing a gift" means
"Reversing a gift" is the term the profession uses for one situation: a debtor transferred an asset to someone else, for no consideration or for a low one, and the court orders that the transfer is void and the asset returns to the insolvency estate, meaning the pool of assets used to pay the creditors.
The Insolvency and Economic Rehabilitation Law no longer uses the word "gift". It speaks of an "act that removes an asset from the insolvency estate". The change is not only linguistic. It reflects a move from a test focused on what the debtor did to a test focused on the result: were the creditors harmed.
The idea behind the rule is simple. A debtor who gives an asset away on the eve of proceedings reduces what is left for the creditors. The law allows this to be corrected after the fact, within limits of time and circumstance, so that the creditors do not fund the debtor's generosity.
Insolvency and Economic Rehabilitation Law, 5778-2018, Part D, Chapter B, Section B: "Setting aside transactions that reduce the insolvency estate". Checked September 2026.
Which law applies: the new Law or the old Ordinance
Until September 2019 individuals were governed by the Bankruptcy Ordinance, which allowed the trustee to examine gifts up to ten years back. The Insolvency and Economic Rehabilitation Law came into force eighteen months after its publication, and it applies to proceedings opened from that date onward.
Bankruptcy proceedings that were pending on the commencement day continue under the old law. The first question in every case is therefore when the proceedings were opened. A case opened under the Ordinance is examined in the Ordinance's terms; a new case is examined under the framework described on this page.
The practical difference is large. The look-back period was shortened, the tests were reformulated, and the Law applies equally to individuals and to corporations. A company that transferred an asset to its controlling shareholder is examined under the same sections as a person who transferred an apartment to a child.
Section 373 of the Law: commencement eighteen months after publication on 15 March 2018; pending proceedings continue under the previous law. Checked September 2026.
The three conditions for setting a transfer aside
Section 220 of the Law allows the court to set aside an act carried out before the order opening proceedings, as a result of which an asset was removed from the insolvency estate. Three conditions must be met together, and if one is missing the application fails.
- No consideration, or inadequate consideration. A gift is the obvious case, but a sale below value also falls here. The question is whether the consideration was adequate in the circumstances, not whether something was paid.
- Within the look-back period. The act took place in the period beginning two years before the application for an order opening proceedings was filed. If the act was in favour of a relative, the period extends to four years.
- Insolvency at the time of the act. At the time of the act the debtor was insolvent, or the act itself brought the debtor into insolvency.
The Law defines insolvency as an economic state in which the debtor cannot pay debts as they fall due, or in which the debtor's liabilities, including future and contingent ones, exceed the value of the debtor's assets. Either test is enough.
Sections 2 and 220(a) of the Insolvency and Economic Rehabilitation Law. Checked September 2026.
The presumption that shifts the burden of proof
The third condition, the debtor's financial position on the day of the transfer, is hard to prove, and the act may have taken place years before the proceedings. The Law solves this with a presumption: a debtor is presumed to have been insolvent during the look-back period, unless proven otherwise.
This means the trustee does not need to reconstruct the debtor's balance sheet at the time of the gift. Whoever wants to keep the asset, usually the recipient, must show that at that time the debtor could pay all debts, or that the debtor's assets exceeded the liabilities.
This is a point to understand before the proceedings, not during them. Bank statements, tax assessments, valuations and loan documents from that period are the material with which the presumption is rebutted, and without them it stands.
Section 220(b) of the Law: presumption of insolvency during the period, unless proven otherwise. Checked September 2026.
Who counts as a "relative", and why it matters
The difference between two and four years depends on who received the asset. The Law defines "relative" in a broad list: spouse, parent, grandparent, child, sibling and their children, brother-in-law and sister-in-law, uncle and aunt, parents-in-law, son-in-law and daughter-in-law, grandchild and great-grandchild, the spouses of each of these, and anyone dependent on the debtor.
For a corporation, "relative" includes among others a body controlled by it, its controlling shareholder, another body controlled by the same controlling shareholder, and an office holder in the corporation or that person's relative. A transfer from a company to a sister company, or to a director, is therefore examined over four years.
The logic is clear. A transfer to a relative is the natural way to keep an asset inside the family, or inside the group of companies, while moving it out of the creditors' reach. That is why the Law looks further back in exactly these cases.
Definition of "relative" in section 4 of the Insolvency and Economic Rehabilitation Law. Checked September 2026.
Deliberate concealment: seven years, even without insolvency
Section 221 of the Law deals with a more serious case. An act carried out in order to hide an asset from creditors can be set aside even if the debtor was not insolvent at all at the time, provided it took place within seven years before the application for an order.
Here intent is the heart of the matter. The trustee must show that the purpose was concealment, and the result alone is not enough. On the other hand, the court may take into account whether the person who received the asset did so in good faith, a consideration that does not exist in the ordinary route under section 220.
In practice the two routes are often pleaded together. The trustee argues removal of an asset under section 220 and, in the alternative, concealment under section 221 if the act is older. The defence must prepare for both.
Section 221 of the Insolvency and Economic Rehabilitation Law. Checked September 2026.
Not to be confused with a preference
Alongside the reversal of gifts there is a separate route, setting aside an act that gives a creditor a preference. Here the debtor did not give a gift but paid a real debt, to one creditor at the expense of the others, close to the proceedings. The look-back period is far shorter: three months before the application, and one year where the creditor is a relative.
Here too the debtor must have been insolvent at the time, and the act must have paid that creditor a larger share of the debt than it would have received in the ordinary order of distribution. The Law excludes payments made in the ordinary course of business, and acts for which adequate consideration was given.
The distinction matters to anyone who received money from a debtor. Payment of an existing debt is examined under the preference route and a short window; receipt of an asset with no debt behind it is examined under the gift route and a window of years.
Section 219 of the Insolvency and Economic Rehabilitation Law. Checked September 2026.
What happens after the order, and who is protected
Once the act is set aside, the assets returned are included in the insolvency estate and distributed to the creditors according to the order of priority. If returning the asset itself is impossible or unjust in the circumstances, the person in whose favour the act was carried out pays its value, as the court directs.
The Law protects third parties. A person who acquired a right in the asset from the recipient, after the original act, in good faith and for consideration, is not harmed by the order. In that case the liability falls on the first recipient, for the value of the asset, and not on the innocent buyer.
The application is made to the insolvency court. Even in proceedings of an individual with low debts, which are managed by the Enforcement Registrar, an application to set aside an act transfers the management of the proceedings to the Commissioner and the court.
Sections 222, 223 and 208(3) of the Insolvency and Economic Rehabilitation Law. Checked September 2026.
In summary
In summary, reversing a gift is a tool for the creditors, not a punishment for the debtor. An asset that left the debtor's hands without adequate consideration during the look-back period, when the debtor could no longer meet its debts, returns to the insolvency estate. The statutory presumption places the burden of proof on whoever wants to keep the asset, and the period changes with the identity of the recipient and with intent.
Handling such a case requires reconstructing a financial position at a date that has passed, understanding the distinction between the three routes in the Law, and preparing very differently when representing the recipient rather than the debtor or a creditor.
Contact us to review the transfer at issue, from whichever side you stand, and to learn about the options available to you.
Frequently asked questions about reversing a gift
Can a gift given five years ago be set aside?
What counts as "adequate consideration"?
Does the trustee have to prove that the debtor intended to hide assets?
I received an apartment as a gift from my father, and he has entered insolvency proceedings. What can I raise?
Does the Law apply to companies too?
What is the difference between reversing a gift and a preference?
My bankruptcy case was opened before 2019. What applies to me?
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