רחוב אחד העם 9 תל - אביב 6525101
טל: 03-5166430 | פקס: 03-5166432
דוא"ל: סyaron_y@inter.net.il
www.yaron-legalcollectiona
רחוב אחד העם 9 תל - אביב 6525101
טל: 03-5166430 | פקס: 03-5166432
דוא"ל: yaron_y@inter.net.il
www.yaron-legalcollection.com
מאמרים

THE  EAGLE
N E W S L E T T E R

For and about the needs of those who forward collection  matters to attorneys ...and the attorneys who receive them

       ----------------------------------------------------------------------------------------------------------------

A publication of The Commercial Bar                             1999 - Vol. 3 - Edition 3 - September


COLLECTION  PRACTICES  IN  ISRAEL

by Mr.Yechiel Yaron, Attorney at Law
of Law Offices Yaron & Hoffmann, Tel Aviv


As one might expect, the first step in attempting to collect in Israel is no different from what one experiences elsewhere in that it begins with a written demand. While this step is not a requirement to the commencing of a law suit, it usually takes place. Creditors have some prejudgment remedies available to them, but those from foreign countries are required to post a bond in connection with these procedures. One of these prejudgment remedies is a temporary lien on a debtor's attachable assets which includes cash and accounts receivable. The Statute of Limitations is seven years, though this may be tolled if a judgment has already been obtained in another country.

Once the legal action begins, personal service may be effected by plaintiff's counsel, by messenger or by mail. Interest may be added, and this usually runs between 4% and 8%, in the case of private contracts or loans percentages may be different; however, collection charges may not be passed on to the debtor. There are substantial investigative and information resources available to locate particular debtors though there is a separate fee charged for these services. Filing fees in civil matters are 2.5% of the amount of judgment sought (0.5 % for expenses and fees in connection with the claim such as lien, attachment, translation of all documents into Hebrew for the court and the defendant). Foreign plaintiffs must post the equivalent of a bond for these fees on the possibility that the debtor may prevail.

Should the debtor not satisfy the judgment after it has been obtained, an action in the Executive of Judgment, a separate department located near the court, must be started. This entity is headed by a judge and performs adjunct services to the courts. The process starts with the issuance of a warning letter to the debtor, and enforcement mechanisms are available which are similar to those in the US. Similar to unsatisfied judgments, dishonored checks are also submitted directly to the Executive of Judgment office and an attachment is imposed on property and other assets. Under certain circumstances, a warrant for the arrest of the maker of the check or the judgment debtor may be issued and remain in force until payment is made. In many cases the creditor's attorney requests and  the judge grants an order preventing the debtor from leaving Israel until full payment is made. In Israel there is a criminal law to punish individuals (not companies) who issue checks covered by insufficient funds. There is a substantial backlog of unpaid judgments as the Executive of Judgment office accepts small monthly payments. Recovery rates are often as high as 85% of the matters handled in Israel.

There are presently no restrictions on the transfer of funds, resulting from collection of debts, in any currency out of the country. In most cases the debtor transfers funds to the attorney's trust account, one required by law, in local currency, and it is then exchanged by the receiver into the foreign currency and sent to the forwarder. There are occasions when the debtor will pay the creditor directly and as expected, the forwarder is responsible for the payment of the receiver's fees. The fees of the attorney for services performed: investigative, accounting, expert witnesses, etc. are subject to a Value Added Tax, currently at a 15.5% rate. Attorneys in Israel are permitted to charge contingent fees, but a non-refundable suit fee is usually charged in addition to any contingent fee arrangement.


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DEBT  COLLECTION  AND  HOW  TO  COVER  CREDIT  LOSSES
By Mr. Yechiel Yaron,
Attorney at Law and Notary Law,
Yaron International Credit Management Ltd., Tel Aviv


Introduction

The volume of collection work done in Israel constitutes a high percentage of overdue debts. Collection work is handled by lawyers and professional collection agencies, but almost entirely by attorneys. Pending legislation will severely curtail representation of creditors by collection agencies. Collection work is done on all kinds of consumer and commercial accounts. Collection Licensing Requirements are applicable to collection lawyers or agents. Most collection work is done by licensed attorneys or their personnel. Collection agencies do not presently require a licence, but they are not allowed to implement collection procedures in court or at the office of the execution of judgment. This can be done only through a lawyer. For this reason, it may be necessary to handle collections through a lawyer's agency like ours.

General procedures and steps used by lay collection agencies in a typical collection effort: Collection agencies and letters subsequently apply directly to the debtor to collect the money. They are not entitled (as lawyers are) to act on behalf of their clients through court or the execution office. Only the bearer or endorser of a check or promissory note can apply to the execution office directly

The steps a lawyer might take in a typical collection effort: The lawyer usually sends a written demand for payment with a notice to the debtor that the creditor will file legal action if the debt is not paid. Upon failure to pay the debt, the client files an action in court, or in case of a check or promissory note, he may apply directly to the execution office (or court).

Lay collection agencies charge between 30 percent and 60 percent of the amount paid by the debtor.

What and how do Lawyers typically charge?

Lawyer's fees are arranged by agreement with the client as follows: Minimal payment for claim letter and a percentage (10-12%) of the amount actually collected from the debtor, plus lawyer's fees (15-20%) as determined by the court or execution office (in case of legal action); retainer for handling claim(s); and advance payment, irrespective of the success in collection.

Can any collection charge be passed on to the debtor? No. But we try and sometimes we succeed. May interest be added to unpaid bills? If so, what is the legal maximum rate? Yes. In court, interest of 4% to 8% plus linkage to the Cost of Living index on shekels. On foreign currency (collection for foreign creditor) interest is per agreement. Under Israeli law it is 3%-5% per annum

Client-Forwarder-Forwardee Relationships. Client-relationship - Is there any­thing special to note about the relationship between collection agents and their clients? For example, if an account is worked by a collector and then withdrawn by

the client before actual payments start, has the collector earned any fee or commission if the debtor eventually pays part or all of the debt? Commission depends on the agreement between the parties. Under rules of the Israeli Bar Association an attorney must have written authorization from the creditor and not merely from the collection agency.

Forwarded claims and accounts - What information is needed when you receive an account for collection from outside your country? Full details regarding the claim and the debtor are needed. In case of a company (Israeli corporation) details regarding directors and shareholders, documents constituting the basis for the action, exchange of correspondence having accounting significance, receipts, debit notes, checks or bills are required.

Miscellaneous

Skip tracing - Collection attorneys are associated with investigation and information agencies and are knowledgeable about government offices through which it is possible to receive information about debtors. For every investigation, examination and/or other service there is a specific charge or fee - subject to the client's requirements.

Un-collectable claims – Un-collectable claims are subject to the client's instructions. If an action is filed at the execution office (after obtaining judgment or in the case of checks and promissory notes) the file remains open as long as there is a possibility to collect the debt. In the interim, interest and linkage on the principal accumulate. Prior to legal action the client may request that the lawyer close the file and cease legal proceedings.

Dishonored checks - In the case of checks, collection is less complicated. They are submitted directly by the lawyer to the execution office at the court, and debtor property and moneys can be liened and seized. In certain cases a warrant for arrest may be issued. Collection agencies that do not succeed in collecting the debt without execution proceedings turn to a lawyer's office. In Israel it is criminal to issue checks without sufficient funds.

Courts and Legal Proceedings

What information is needed to file legal action? Documents creating or confirming the cause of the claim (such as contract, check, bill, invoices etc.) and those relevant to the factual background for the debt and to the refusal to pay are required.

When can a claim be made the object of legal action? Is there a specified statute of limitation period? Are there any preliminary steps that must be taken? If so, what steps? Any debt arriving from breach of commitment to pay and/or from damages constitutes the basis for legal action, provided that less than seven years have elapsed since the date when the cause of action was created.

An exception occurs if there was no possibility to know about the cause of the action, i.e. the debtor has "vanished" or if it was impossible to file action - for political or legal reasons - in the other country within seven years. In such event the statute of limitation period is extended according to the circumstances. There are no preliminary procedures for filing legal action, unless so stipulated in advance by agreement between the parties.

Types of Court where Collection Claims would be filed

There are three courts in Israel for money claims: The Magistrate's Court hears claims up to NIS 2,500,000 (approx. US$ 600,000). Due to added interest and linkage prior to payment of a judgment the total sum may reach twice that amount. The District Court - hears all claims beyond the competence of the lower court and appeals judgments of the Magistrate's Court. The Supreme Court - where appeals of judgments by the District Court are heard. (There are further - the High Court of Justice, the Labor Court, the Rabbinical Court and Military Tribunals). A plaintiff must appear and testify in court if it is vital to the action, unless it is agreed between the attorneys for both parties that an affidavit will suffice, or it is agreed to interrogate the plaintiff or a witness at the Israeli Consulate in the plaintiff's country.

Default summons and default judgments - What constitutes a valid summons? If a debtor does not show up in court, can a default judgment be secured? After the court has authorized (in accordance with Israeli law) service of summons and complaint, the plaintiff must provide confirmation of personal service which must be proven by the signature of the defendant or any person qualified to receive documents on his behalf, for instance a spouse living with him and/or a company (corporation) secretary, or by registered mail. In the event that the defendant does not submit answer by the date stated in the summons (30 days in Israel, 60 to 90 days for a defendant abroad), a valid default judgment is issued against him which becomes final if not canceled or successfully appealed. It is possible to collect such a judgment through the execution office.

What are the Procedures for Process Serving?

Personal service by court messenger or delivery by registered mail sent directly from the court or the execution office, or personal service by the lawyer to the plaintiff (or the defendant).

What is the Process for Levying of Execution? 

One must present the judgment and/or the check or promissory notes - to the court as aforementioned, together with official documents and pay an additional fee of 1% to 1.5% of the judgment to the execution office and then initiate legal proceedings to collect the debt.

  Registry and Validity of Judgments

Judgments in Israel are recorded and remain on the file for 15 years. In special circumstances they remain even longer.

Accounting and Remitting

There is no problem or limitation on transfer of debt collection moneys in foreign currency abroad in the foreign currency.

Handling Payments

Remittance of the debt to a lawyer is per agreement, in two ways:

* Direct remittance to the lawyer (by check or cash) or bank transfer in local             currency which is converted into foreign currency and sent to the client, and

* Direct transfer by the debtor to the client, i.e. the creditor, through foreign currency check or interbank transfer. The collection agency or the client is responsible for payment of commission to a lawyer or collection agency.
Agents or attorneys are required to maintain a separate clients' trust account,             into which all sums collected for the client are deposited.

Reservation of Title

There are laws governing the reservation of rights on patents and inventions, trade marks and models and on copyrights.

Commercial Interests

Owing to the country's small surface area and the lack of natural resources, Israel is mainly known for its science-based industry, its electronics, diamond, fertilizer and chemical industries as well as for its modern agriculture and achievements in the medical field. Israel grants considerable economic benefits to foreign investors. Israel has preferential trade agreements with the United States and the E.C. countries which also grant privileges to foreign investors.

Suggestions for Improving Collection

We would like to make a few suggestions to foreign members or partners, in order to make our debt collection work quicker and more efficiently. Firstly, advise your clients, the creditors, to initiate legal action if amicable collection efforts do not succeed within two/three months. Make sure that clients receive from their customers all details on their business/financial situation, including details of their customer's bank or a declaration by their customer that their business is not insolvent.