Background
At Habusha’s request, an insolvency commencement order was entered on April 6, 2021, and attorney Ronen Na’awi was appointed trustee. The principal debt was owed to the Tax Authority under an autonomous indemnity undertaking that Habusha had signed in connection with debts of a company of which she was the sole shareholder. A lien securing that obligation was registered against her home.
In February 2026, Habusha sought permission from the Magistrates’ Court in Rishon LeZion to file a separate declaratory action against the Tax Authority, contending that the undertaking—and therefore the debt—was void. The Magistrates’ Court denied the request. The Central District Court dismissed her appeal without requesting a response, relying on Hadad v. Yaakov Kashdi Investments Ltd., רע”א 7283/22 (Jan. 1, 2023), and later denied reconsideration. Habusha then sought permission to appeal to the Supreme Court, arguing principally that the District Court had overlooked her alternative request to return the matter to the insolvency court for a focused factual inquiry into the debt’s origin and the undertaking’s validity.
The Court’s Holding
Justice Gila Canfy-Steinitz denied permission to appeal without requesting a response. She held that the application did not satisfy the restrictive standard for a third-tier appeal because it presented neither a question of general importance extending beyond the parties nor a risk of miscarriage of justice.
The District Court had properly confined its review to whether Habusha could litigate the debt outside the insolvency proceeding. Her original application in the Magistrates’ Court requested only permission to bring an independent declaratory action; she first sought an internal remand to the insolvency court on appeal. The District Court was therefore not required to consider that newly raised remedy. Under Hadad, disputes concerning a debtor’s obligations to creditors generally must be submitted to the trustee rather than litigated through a separate lawsuit.
The Court also rejected the premise that Habusha had been denied a substantive examination of her challenge. Section 215 of the Insolvency and Economic Rehabilitation Law, 2018, and Regulation 130 of the Insolvency and Economic Rehabilitation Regulations, 2019, supplied an internal procedure for alleging defects in the determination of a proof of debt, but she did not use it. The lower court properly gave substantial weight to her nearly five years of silence: she had disclosed the debt in her own application, raised no challenge while represented, and negotiated with the trustee about concluding the proceeding and redeeming her home on the assumption that the debt was valid. The challenge arose only after she changed counsel, without any claim that its factual basis had been discovered late.
Key Takeaways
- A debtor generally must challenge a creditor’s claim through the statutory procedures within the insolvency case, not through a separate declaratory action.
- An appellate court need not consider alternative relief first requested on appeal when the lower court was never asked to grant it.
- Extended silence and conduct treating a debt as valid may weigh heavily against a belated challenge, particularly when the debtor knew the relevant facts and had legal representation.
Why It Matters
The decision reinforces the exclusivity and procedural discipline of Israel’s insolvency claims process. A debtor cannot bypass the trustee and statutory review mechanisms by recasting a challenge to a proof of debt as independent civil litigation.
The ruling also illustrates the demanding threshold for a third-tier appeal. The possible realization of Habusha’s home did not establish a miscarriage of justice because the Magistrates’ Court had considered that consequence and repeatedly allowed additional time to reduce the debt before realization proceeded. The Supreme Court denied both permission to appeal and a stay of execution, with no costs because no response had been requested.