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Just as there are recipes to bake a cake, there are steps to follow in recovering a judgment. The easy part is often getting a judgment in court (especially when the defendant does not even make an appearance and defaults). The hard part is getting paid.

Steps:

a)        Identify assets in the name of the defendant

   a.       Bank accounts

   b.      Real estate

   c.       Equipment

   d.      Other movables and personal belongings

   e.      Shares in companies

   f.        Accounts receivable

b)        Insulate the above from the defendant and third parties

   a.       Attachments

   b.      Liens

   c.       Put others on notice

   d.      Warning letters not to touch or dissipate

c)         Gain control over the assets

d)        Monetarize the assets

Methodologies:

a)      Receivership

b)      Petition for bankruptcy

c)       Offsetting credits against liabilities

d)      Discovery proceedings

e)      Search of various data bases

f)       Baliff's office

g)      External pressures

Receivership

A receiver is in effect an agent of the court nominated usually by request of a plaintiff or a creditor in order to guard the assets of the debtor, to sell such in accordance to the court's instructions and to distribute the consideration amongst the creditors. Since receivership is an unusual and extreme procedure, the court will examine whether there are less radical ways to recover the debt (or at least maintain the current situation until a ruling is delivered).

There are various types of receivers delineated in the statutes; the main ones pertaining to our topic are as follows:

Receiver according to the Execution Law: A creditor who has submitted a request to execute a court ruling, may request the appointment of a receiver to sell all or some of the debtor's assets for the purpose of repaying the debt. 

Receiver according to the Civil Procedure Regulation: Upon request of the plaintiff, a temporary receiver will be appointed until a ruling is made regarding a law suit pertaining to the debtor's assets, in anticipation and in fear of the debtor attempting to conceal or sell the assets. There are instances in which a court may appoint a receiver to actually operate the asset or business in the event that the parties are in dispute as to which of them are the lawful owners of same. 

Receiver according to the Companies Law: A company is entitled to mortgage its assets in a "floating lien" in order to receive loans. For this purpose the company would sign a promissory note including a provision according to which if the company does not meet its payment commitments, the bank is entitled to address the district court to execute the promissory note and appoint a receiver for the company's assets.

Receiver according to the Bankruptcy Ordinance: Once an individual has filed for bankruptcy, the court may appoint a receiver who will temporarily hold the debtor's assets until a ruling is received as to whether or not declare the debtor as bankrupt. 

On this topic it is important to mention the extent to which the Israeli legislature has gone in order to protect creditors. The court is able to nominate a temporary receiver if convinced, based on a showing of credible evidence, that there is a substantial concern for significant damage to the value of the assets or that the debtor or someone on his behalf intends to conceal or destroy the assets or the assets were derived from or used for the action which is the subject of the suit.  However, there must also be proof that failing to nominate said receiver could actually impede the execution of an ultimate ruling. The Supreme Court has ruled that since such measures are so severe, they will not be done routinely or without special cause.

For this purpose, the court is entitled to grant a warrant to allow the receiver to (1) enter the creditor's dwellings in order to search or capture the assets (2) search for the assets worldwide (3) photograph or copy the assets (4) attach the assets (5) hold the assets (6) guard or insure the assets (7) operate the assets (8) exercise the rights and authority of the asset owner. 

Note that the Supreme Court has ruled that due to the constitutional law regarding human dignity (which was legislated subsequent to the law allowing grant of such extreme intervention), courts must be more cautious when granting such relief.

In recent years with technological developments, searching information on the debtor's computers has become a hot topic and such is not permissible unless the following three criteria are fulfilled:

Interestingly enough, despite this being such an extreme measure, the legislation regarding the identity of the receiver is very minimal and in February 2012 the Supreme Court (8459/11 Aguiar vs Presenati) addressed the topic of "the manner in which temporary receiverS are nominated by the court and the entity who bears the cost" in what is known as the "Aguiar Case". The court ruled that the party requesting nomination is entitled to suggest one or more individuals for this purpose and it is appropriate that the court be presented with more than one candidate. In the event only one is offered, the request should include a pre-agreed fee for services. The court of course can opt not to appoint the individual proposed. In any event, the court must determine at the time of appointment, a date upon when the receiver shall request determination of his fee.   During the hearing regarding the fee to be paid, the parties may voice their opinion regarding the amount as well as who will bear the cost. The court will not be bound by any deal reached between the moving party and the proposed receiver. Upon the court's ruling on the matter, no prior agreements between the receiver and any of the parties shall be valid.

Petition for bankruptcy

A petition for bankruptcy can be submitted by the creditor as well as the debtor. The creditor's main advantage in petitioning the district court requesting the debtor be declared bankrupt, is that through this procedure the creditor will be able to find the debtor's hidden assets or assets which the debtor concealed or transferred in proximity to or prior to failure of his business. The law allows returning to the trustee's account for the benefit of the creditors, any assets that were improperly diverted (transferred not in good faith, without consideration or for low consideration) during the two years prior to the day he became bankrupt.  With regard to such assets which were "smuggled" longer than two years but less than ten years prior to bankruptcy, the burden of proof will be on the debtor to prove that at the time of transfer the debtor was capable of paying its creditors even without the "smuggled" goods, otherwise these assets must be returned to the trustee's account as well. 

The Bankruptcy Statute provides a list of seven acts of bankruptcy on which basis it is possible to invoke bankruptcy proceedings:

The bankruptcy act is composed of two elements- factual and mens rea. Both elements must exist simultaneously in such manner that the factual act must be done out of intention to evade, escape or delay.

The terms which must be fulfilled in order for a creditor to petition for debtor's bankruptcy:

The procedure is such that after examining the petition for bankruptcy and the response of the official receiver, the court is authorized to grant a warrant for "receiving" all of the debtor's assets under the official receiver's supervision until a settlement or compromise is obtained with the creditors or until declared bankrupt. The time period between when the court grants a warrant and the date of a hearing in regard to the bankruptcy should be no longer than six months.

It would seem that, in the event the creditor does not suspect "smuggling" of assets, he is better off taking the execution road which allows more aggressive actions against the debtor. Obviously when the debtor is concealing assets or has "smuggled" assets prior to his financial downfall, he is not interested in being declared bankrupt. 

In a case just decided in which Amir Altshuler of Altshuler- Welner was the winning advocate 6269/09 Fitoussi et al vs. The Ministry of Justice, The Administrator General, The Official Receiver et al, wherein Altshuler was nominated as extraordinary receiver of the assets of the defendant. The defendant was a business man who collected money from investors in sums equaling 80 million NIS. The money was never invested as claimed by the defendant but rather was used in a pyramid scheme.

Offsetting credits against liabilities

To the extent the plaintiff owes monies to the defendant or has other liabilities to the defendant, then the winning plaintiff can do a book entry offset, known in Hebrew as “Keezuz”.

There are two types of instances that Israeli law allows a book entry offset. The first is in The Bankruptcy Ordinance which deals with one party being insolvent, and the second is in The Contracts Law which deals with both parties being solvent. The book entry offset in The Contracts Law deals with mutual monetary debts between two parties. A book entry offset can be done by one party giving the other notice. Courts have ruled that a book entry offset may be viewed as a payment method, since once a notice is sent, both debt from both parties are paid off (whether fully or partially). In practice, most people do not perform book entry offset in this manner, but rather wait till there is a lawsuit and then use book entry offset as their defense. Another way to use book entry offset as a defense is through a counter claim. This approach, is more effective since in the event that the original suit is dismissed, the defense of book entry offset is terminated, while if brought as a counter claim, continues to "live on".

In Israel, based on the European law, in order to perform a book entry offset, notice must be given, similar to the German law. There are other countries in which the book entry offset is done automatically.

Similar to book entry offset is the right of to withhold, found in the Stature for Contractor Contracts according to which, in general, the contractor has the right to withhold a property from the client who ordered it in the event the client is in debt to the contractor. 

Discovery proceedings

When handling the case through execution of judgement, the debtor has three choices:

In the event the debtor opted for the third choice, the debtor must first answer a questionnaire regarding his financial ability and sign a waiver of confidentiality regarding his assets and sources of income. The investigation will result in deciding the monthly amount to be repaid to the creditor. Not paying this amount will quickly lead to incarceration of the debtor.  

When handling the case through bankruptcy and opening a file with the official receiver, notices are sent automatically to all banks, mortgage banks, insurance companies, tax authorities, etc. Each of these requests for information are based on the debtor's waiver of confidentiality. This is the manner in which the official receiver is able to receive information from the said entities regarding the debtor's rights and/or obligations towards them. It takes about one month to receive answers to these requests and when responses include assets or money held by third parties, the official receiver requests additional information (such as printout of bank transactions and credit card transactions) and places a lien on the assets and money. 

Despite the amount of information exposed in this manner, most information actually is retrieved from the debtor himself who is required to fill out a report on his assets and commitments when requesting to file for bankruptcy. This information is sort of an xray of the debtor and does not exist when the creditor is the one filing for the debtor's bankruptcy. 

Additional information is gathered from creditors who inform the investigators of their knowledge, for example, if the debtor is seen driving a car. The investigators may also investigate the debtor in their offices as well as make house calls to see the debtor's life style.

Search of various data bases

In Israel there are two types of computer data bases.

(a)    Governmental lists e.g. that show ownership of vehicles, real estate

(b)   Company lists e.g. bank accounts, insurance policies, pension schemes

These data bases cannot be searched by name but rather by the identity number of the individual or the corporate number in the case of a company.

These data bases are not available for public access. Although the Bailiff's Office would be able to make information requests from both types, sometimes this information is needed before the required court order has been obtained. In such cases private investigators in Israel are quite successful in locating the same information that would be accessed from the data bases. There is no legal or ethical requirement for the client hiring the services of the investigator to inquire how such information is obtained.

Bailiff’s Office

The Bailiff's Office is a governmental entity and its goal is to protect the interests of the prevailing litigant and allow him to collect the judgment he was awarded. (A "prevailing litigant" is defined as someone who is in possession of a court ruling, a check, a bill or any other document which requires someone to pay him or perform an action.) With that said, the Bailiff's Office insures that the debtor's rights in the case are not trampled, and in instances in which he is unable to pay, the Bailiff's Office will assist him to fulfill the judgment in other manners, such as joining files or spreading the amount into smaller installments which he is able to endure.

The proceedings available for the benefit of the creditor: 

External Pressures

Once a debtor is proclaimed as having "limited means", his name is entered into a special list which is opened to the public. The public will be able to see his name, ID number, address, profession, the date he was proclaimed as having limited means, the debt amount as well as the file number in execution proceeding office.

As of November 2009 there are limitations that can be put on the debtor such as limitation on holding or renewing a drivers' license, holding or renewing a passport, receiving checks and credit cards, owning a company, exiting the country, etc.

As already mentioned above, there are cases in which the creditor is prevented from leaving the country. As a general rule, a creditor will not be allowed to leave the country if proven that (a) the debtor intends on leaving the country and that (b) leaving the country may prevent collection of the debt.

Although it is always considered a drastic measure, when the creditor is not an Israeli resident, and his center of life is not in Israel, it is considered even more extreme. In general, such a debtor will only be prevented from leaving the country if such prevention will necessarily cause the debt to be paid off, fully or partially. Rulings on this matter have explained the reasons for not detaining the debtor even if he does not pay off his debt with two reasons: (1) the severe harm in detaching the debtor from his center of life, family and place of business and (2) the lack of benefit from detaching the debtor from his source of income, as he will not be able to pay off his debt if he cannot earn a living.

There have been rulings that have furthermore differentiated between a foreign resident who is a tourist in Israel and a foreign resident who is an Israeli and has some sort of commitments to Israel. A foreign resident who is just a tourist, usually does not have any sources of income in Israel or any holding in Israel and therefore keeping him in Israel although serves as a punishment, but does not assist in collecting the debt. However, applying the classic law to a foreign resident who is also an Israeli who entered into commitments in Israel and then left and settled in another country, will break the balance between the creditor's right to collect and the debtor's right to freedom of movement. 

Letter of Credit

A letter of credit is not specifically mentioned in any law but has come up in court as it provides a solution for the import-export market which deals with parties in different countries. The classic example for a letter of credit is when an importer asks a bank to issue a commitment in the exporter's benefit. Said commitment is the letter of credit and in the event that the exporter submits documents (mainly the bill of landing) to the bank. The bank will then release the money subject of the commitment, to the exporter. In order to preserve the autonomy of the letter of credit, courts have ruled that the payment on its behalf may not be withheld and the importer may only file a lawsuit against the exporter based on their contractual agreement. 

Importers have found a way to stop the payment since the importer has no relief other than to sue the exporter, a timely procedure, in the meantime he requests to place a temporary seizure on the exporter's assets (the assets in this case were money owed based on a letter of credit). The court does not accept this technique since it damages the letter of credit as a tool, since even though the procedural technique is different, it reaches the same goal of stopping the letter of credit, a goal which it is not entitled to due to the autonomy of the letter of credit.

Foreign Judgments

There is a statutory basis for the enforcement of foreign judgments in Israel. The Civil Code incorporates numerous international treaty obligations of which Israel is a signatory. To enforce a foreign judgment does not require that you initiate a “de novo” civil action. Defendants cannot seek to argue a defense that was presented in the original case.

Some of the stipulations include:

a)      There was notice and opportunity for the defendant to be heard

b)      There is finality and no appeal to the original judgment

c)       No fraud or mistake was involved in the judgment

d)      No forum non convenience for the defendant

e)      Reciprocal enforcement between Israel and the country of original judgment

Plaintiff will need to have an expert witness available to testify on the compliance of the above conditions and the foreign law and procedures.

In conclusion, it seems anyone can win a judgment in Court, the trick is collecting it.