Background
A creditor commenced bankruptcy proceedings against Rafael Rubinitz in 2015. According to the courts, Rubinitz repeatedly failed to perform his obligations during the proceeding and acted in extreme bad faith, prompting several earlier imprisonment orders. In November 2024, after he was questioned about information inconsistent with his claimed financial hardship, he agreed—while represented by counsel—to increase his monthly payment to the bankruptcy estate to NIS 2,500.
Rubinitz stopped making monthly payments and filing required reports in April 2025. He argued that funds from a third party abroad should instead be paid through a proposed creditor arrangement that would conclude the proceeding and produce a discharge. Most creditors rejected the proposal. By May 2026, his arrears had reached NIS 35,000, although he said the third party was prepared to add NIS 60,000 to the settlement offer.
The Central District Court found that Rubinitz could comply with the payment order but was deliberately refusing to do so unless creditors accepted his proposal. Concluding that no less restrictive measure would secure compliance, it ordered him imprisoned for ten days unless he paid the NIS 35,000 arrears. Rubinitz sought leave to appeal and requested a stay.
The Court’s Holding
Justice Ruth Ronnen denied both the application for leave to appeal and the stay request, without requiring responses from the respondents. The Supreme Court emphasized that bankruptcy courts receive broad discretion because of their expertise and firsthand familiarity with the proceeding and the parties’ conduct. Appellate intervention is therefore reserved for exceptional cases, and this was not one.
The Court recognized that imprisonment under section 179 of the Bankruptcy Ordinance is an extreme measure requiring particular caution. Before ordering it, a court must be satisfied that the debtor can comply but intentionally refuses, that no less restrictive alternative will induce compliance, that adequate warning was given, and that the term of imprisonment is proportionate. The District Court permissibly found those requirements satisfied in light of Rubinitz’s conduct throughout the case, his repeated opportunities to explain his noncompliance, and his insistence that he would pay only through a creditor arrangement.
A proposed arrangement did not suspend Rubinitz’s independent duty to obey the payment order, and creditors had no obligation to accept his offer. His claim of present inability to pay was unsupported by evidence or an affidavit, and he had not filed the required financial reports or shown any change since agreeing to the increased payment. The Court noted, however, that he could seek reconsideration in the District Court if he obtained evidence that his financial condition had worsened and he could no longer comply.
Key Takeaways
- A debtor cannot unilaterally stop complying with a bankruptcy payment order while attempting to secure approval of a creditor arrangement.
- Imprisonment is an exceptional enforcement measure, permissible only upon findings of ability to comply, intentional refusal, adequate warning, proportionality, and the absence of a less restrictive effective alternative.
- An unsupported assertion of financial hardship—especially without an affidavit, current reports, or evidence of changed circumstances—does not require an appellate court to disturb a finding that the debtor can pay.
Why It Matters
The decision confirms the substantial deference given to Israeli bankruptcy courts when enforcing orders against persistently noncompliant debtors. Although debtor imprisonment remains a last resort, it may be upheld where the record shows deliberate refusal rather than demonstrated inability to pay.
The ruling also separates settlement negotiations from ongoing procedural obligations: proposing a creditor arrangement neither compels creditors to accept it nor excuses compliance with an existing payment order. A debtor claiming changed financial circumstances must present evidence to the bankruptcy court rather than engage in self-help.