Corona news flash| Insolvency

The Insolvency and Financial Rehabilitation Law, 5778-2018, (the “Law”) which came into force in September 2019, and governs the insolvency laws relating to corporations and individuals, sets out new rules regarding the liability of directors and managers in an insolvent corporation.
Alongside the existing obligations of directors and the CEO towards the corporation (such as the duty of care and the fiduciary duty under the Companies Law), the Law imposes a special obligation on them during the period prior to the initiation of the insolvency proceedings, if they have not acted to decrease the scope of the insolvency.
The Law contains a presumption according to which the directors and the CEO will be presumed as acting in compliance with their obligations to take reasonable measures to minimize the scope of the insolvency as long as they have taken steps to assess the corporation’s financial position, and provided further, that they have taken any one of the following actions:
• Applied for receipt of assistance from specialists in the field of rehabilitation of corporations;
• Held negotiations with creditors for the purpose of reaching a settlement for the rescheduling of the company’s financial debts;
• Initiated insolvency proceedings.
The financial crisis embarked recently across the world and in Israel due to the Coronavirus, has led to financial distress of many companies which, unfortunately, may bring them to insolvency proceedings in the future.
In order to mitigate the exposure of those who lead the operations of these companies, it is recommended that they take legal advice from an expert in the field of insolvency such as the insolvency department at our firm – a move which, of itself, could help if any claim were to be raised in the future against the directors and/or the company’s CEO.

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