Sharp Increase in Companies Seeking Court Intervention Due to Financial Struggles in 2023

In the period between June and August of 2023, a substantial surge of approximately 84% was recorded in the number of requests from companies seeking court assistance. These companies were grappling with financial distress and were requesting immediate appointment of officials to oversee their affairs. This marks a significant uptick compared to the same period in 2022. The data, compiled by Insolvency Commissioner D. and CPA Asher Engelman, also revealed a distinction in the nature of requests during this timeframe.

Within this period, there was a noteworthy 36% increase in requests specifically related to complex cases. These cases involved companies seeking to appoint officials due to their mounting debts, as opposed to simpler cases of inactive companies primarily requesting liquidation orders. This upward trend was further evident when analyzing data from January to August of 2023, indicating a rise in complex company cases compared to the same period in 2022. The Insolvency Commissioner's office stated that a comprehensive examination of this trend shift would be conducted at the end of the year.

The surge in requests for insolvency proceedings was not limited to corporate entities. Comparing January to August of 2023 with the same months in 2022, a 6.7% increase in individual requests for insolvency proceedings was observed. This increase became more pronounced when looking at the months of July and August, where a 12.9% rise was identified.

The variety of cases encompassed both straightforward instances involving inactive companies, aiming for liquidation to address their debts and facilitate National Insurance claims by employees, as well as more intricate scenarios. The latter involved companies seeking court-appointed officials or debt settlement managers due to their complex financial hardships. While an overall decrease in application submissions was noted in the first half of 2023 compared to the previous year, these figures were influenced by a substantial increase in cases related to companies encountering economic challenges. This pertained specifically to companies requesting court orders to freeze proceedings, appoint trustees, or utilize the provisions of Amendment 4 to the Insolvency Law—an amendment tailored to assist companies impacted by the pandemic. Notably, this category of cases experienced a significant 31% rise in the first half of 2023 compared to the same period in 2022, with the surge becoming even more pronounced when comparing June to August of both years, showing an 84% increase.

Recent examples of companies grappling with financial turmoil include Rom Kinneret, a real estate firm facing debts of around NIS 137 million, and Ora Smart Air, a public air purifier company accruing a NIS 49 million debt. Both companies sought court intervention and had trustees appointed to oversee their financial affairs.

The causes behind this surge in financially distressed companies seeking court intervention were analyzed by legal experts. Attorney Keren Reichbach Segal from the Gornicki firm pointed to a multifaceted landscape, contrasting with previous instances of localized collapses. Factors contributing to this situation include increased interest rates, difficulties in securing financing, rising prices (including raw materials), and fluctuations in the dollar exchange rate affecting import-dependent companies. The slowdown in investments within Israel, compounded by the traditional sensitivity of the summer and holiday periods for company collapses, further contributed to this trend.

Adv. Avihai Vardi, Chair of the Insolvency Trustee Committee in the Tel Aviv Bar Association, concurred with this analysis and highlighted several converging factors. The dramatic increase in interest rates had particularly dire consequences for companies reliant on credit. Additionally, the stagnation in the real estate sector, coupled with issues of financial crime and political uncertainties, further exacerbated the situation. Vardi emphasized the importance of seeking professional solutions to address these challenges and achieve a measured resolution.

Attorney Ehud (Odi) Gindes, who represents companies in distress, explained that the economy's sluggishness, compounded by international events such as the Ukraine crisis causing an energy shortage in Europe, had triggered inflation and prompted central banks to raise interest rates. This, in turn, had repercussions across the economy, including elevated mortgage and business credit interest rates.

In response to these findings, Insolvency Commissioner Asher Engelman acknowledged the growing trend in case volumes and the need for continued analysis of the situation.