* Proposes three-step process for settling with creditors
* Aimed at encouraging growth of debt capital markets
By Steven Scheer
JERUSALEM, April 30 A panel of Israeli
regulators has proposed new, more transparent rules for managing
companies after they get into financial difficulties that would
provide more protection and predictability for creditors.
The panel, led by Finance Ministry Director-General Yael
Andorn, made the recommendations to encourage the growth of
Israel's debt capital market following a number of high-profile
debt settlements that angered the public and harmed investor
"We think that having specific rules and specific directives
of what happens when a company gets to a debt (restructuring)
brings much more certainty and makes this debt market a better
one and a more efficient one," Andorn told reporters.
She noted that the recommendations are based on regulations
in the United States and Britain.
"Regulation of debt arrangements ... is critical to
strengthening the confidence of savers and depositors in the
credit system," she said, adding that such a process would
create more rational pricing of debt.
Half of all business credit currently comes from the bond
market and other sources than banks, up from 23 percent in 2003.
Andorn's panel, which included securities, banking and
capital markets regulators, recommended in an interim report a
three-stage approach to debt restructuring.
In the optional first phase, companies that start having
debt problems appoint a debt representative, who draws up an
initial debt settlement proposal aiming to strengthen the firm.
In the second phase when the company is already in financial
distress, the creditors appoint an observer to the board of
directors to make sure the interests of the lenders are taken
into account. The company is required to cut costs and stop
dividend payments, ensuring it acts in the interests of its
In the third phase, after a company fails to pay its debt
for 45 days, the controlling shareholder loses the ability to
manage it, and a special manager is appointed by a receiver. The
company also has the option to go to court.
"The purpose of this stage is, first and foremost, to create
complete certainty for the company and its debtholders," the
"The certainty should increase the chances for dialogue
between the company and its creditors that will lead to an
optimal arrangement for the parties," it added.
Since 2008, 140 Israeli companies have entered into debt
settlement arrangements for a value of 39 billion shekels ($11.3
billion), 10 of them in 2013.
Most recently, conglomerate Israel Corp lost
control of shipping company Zim under an agreement with Zim's
Nochi Dankner, once one of Israel's most powerful
businessmen, lost his debt-ridden conglomerate IDB Holding
earlier this year.
($1 = 3.4674 shekels)
(editing by Jane Baird)