Israeli Investors Should Apply Cross-Border Solutions to Distressed Situations

When a debt issuer falls into distress, Israeli investors need advice informed by deep knowledge of international insolvency and enforcement regimes, coupled with capabilities to aggressively protect and pursue their rights across the relevant jurisdictions. Insolvencies are seldom confined within national borders—distressed firms have global assets, and their debt is acquired and sold in international markets. 

Israeli investors in global debt markets increasingly deal with two types of situations:

• Creditor-on-Creditor Violence and Liability Management Exercises (LMEs): Israeli funds that invest in syndicated debt markets are increasingly exposed to LMEs, in which the majority of holders seek to improve their own position at the expense of other holders.  Detecting early warning signs of LMEs depends on informal methods of information gathering. In addition, informed and strategic pre-LME activity can put clients on better footing to pursue their rights. As non-U.S. issuers also explore LME options, creditors must understand the interplay between the debtor-creditor laws of multiple jurisdictions.
• Private Credit and Non-Performing Loans: Israeli investors are increasingly investing in private debt. When private debt goes into default, monetizing the claim is often a function of an aggressive multi-jurisdictional enforcement strategy that combines litigation tools with innovative out-of-court solutions.

Israel’s recent adoption of the Model Law on Cross-Border insolvency puts creditors on a firmer footing to leverage global insolvency tools by coordinating foreign and Israeli proceedings. A multi-jurisdictional approach allows international investors and creditors to gain leverage toward a favorable recovery. Effective monetization requires a strategic approach and a diverse toolkit, including:

• Bringing Proceedings Offshore. Companies, including in Israel, often use holding structures in offshore jurisdictions such as the Cayman Islands and the British Virgin Islands. Creditors can often obtain information in those locales without having to notify the debtor. In some circumstances, most offshore jurisdictions also offer powerful provisional orders, such as worldwide freezing injunctions and interim receivers.
• Leveraging U.S. and Other Onshore Insolvency Tools. Many Israeli companies have interests in the U.S. and other onshore markets, including in the UK and Asia. This creates opportunities for international creditors to leverage creditor-friendly insolvency and discovery regimes. For instance, the U.S. provides broad discovery powers that allow creditors to pursue bank records from U.S. clearing banks. As another example, bilateral recognition agreements between Hong Kong and China provide creditors with viable enforcement options in Hong Kong against Chinese debtors.
• Conducting a Worldwide Information Gathering and Targeting Campaign. Deploying asset tracing specialists can help identify the debtor’s worldwide structures and assets as well as implicated deep-pocketed third parties. This informs creditors’ strategic considerations and helps determine where and on what assets (e.g., overseas receivables and IP) to focus their recovery efforts.