Lending &Trending (Q1/2025)

Dear Clients and Friends,

We are pleased to present you with our quarterly update on banking, finance, and insurance law for the last quarter of 2025, including a summary of recent legislative, regulatory, and judicial developments.

Legislative Updates

Bill Proposal to Regulate Securitization Transactions

Following the draft securitization bill published on July 31, 2023, and subsequent public comments, on February 18, 2025, the Israeli Knesset introduced a bill for the first reading to regulate securitization transactions. This bill seeks to establish a legal framework for securitization in Israel, defining the nature of such transactions and the requirements they must meet.

Currently, Israel lacks an established legal, accounting, and tax framework for securitization, creating uncertainty and limiting market development. Professional committees have recommended comprehensive legislation to promote competition in the credit market, increase financing accessibility for SMEs, and reduce funding costs.

The proposed bill defines securitization transactions as those where future cash flows from underlying assets are transferred to a “special purpose entity” (SPE) which issues debt instruments backed by those assets. The bill stipulates that securitization transactions will only be valid if carried out under the new law and will apply to transactions signed after the law comes into effect, even if the underlying assets originated earlier.

Key elements of the bill:

Definition of Securitization: A transaction involving the transfer of two or more underlying assets from one or more “initiators” to an SPE in exchange for funds raised from the issuance of debt instruments in at least two tranches.
Definition of Underlying Assets: Rights to receive payment under a contract or law, such as housing loans, auto loans, credit card debt, retail or commercial loans, or customer debts. It may also include rights not yet created, subject to conditions.
Restrictions on Underlying Assets: Certain assets are excluded (e.g., complex or conditional claims, assets tied to different underwriting standards, delinquent loans, or re-securitized assets). The Governor of the Bank of Israel may impose further restrictions.
Risk Retention: The initiator must retain at least 5% of the asset pool, through horizontal or vertical retention or as otherwise directed by the regulator.
Legal Transfer as a Sale: The bill outlines criteria for treating the transfer as a true sale, ensuring investors are shielded from the initiator’s insolvency.
Unregulated Initiators: Must partner with a regulated entity to structure the transaction and assume the associated risk.
Loans for Acquiring Assets: The SPE may take out a loan from investors in addition to issuing bonds.
Clean-up Call Option: The initiator may repurchase assets only under a clean-up call clause, when balances fall below a predefined threshold.
Replacement of Underlying Assets: Allowed under specified conditions and subject to prior agreements with the SPE and investors.
Assignment of Ancillary Rights: The initiator must assign any ancillary rights related to the underlying assets unless restricted by law.
Taxation – Income Tax Ordinance: The bill includes income tax amendments to enable tax-neutral securitization, treating the SPE as a pass-through entity.
VAT Amendments: Recognizes the SPE as a financial institution under VAT law and sets provisions regarding its profits.
Amendments to Securities Law: Regulates public offerings of SPE-issued instruments via a prospectus, defines involved entities as “regulated entities,” and grants the Israel Securities Authority oversight to ensure investor protection.

Regulatory Updates

Bank of Israel Evaluating Repo Transactions with Non-Banking Institutions

The Bank of Israel, in cooperation with the Ministry of Finance, Israel Securities Authority, and the Tel Aviv Stock Exchange, is exploring the possibility of allowing regulated non-bank credit providers to enter into repo (repurchase agreement) transactions with the central bank. This aims to improve liquidity and credit access for small businesses impacted by the war.
In a repo, a financial institution sells an asset (usually a bond) to the Bank of Israel with a commitment to repurchase it later at a predetermined price. This enhances non-banking institutions’ liquidity, allowing them to extend more credit.
This could lead to a more sophisticated repo market in Israel, expanding capital market activity, liquidity, and encouraging foreign investment.

Judicial Updates

Electronic Signatures on Promissory Notes – Recognition and Limitations

The court ruled that electronic signatures on promissory notes can be valid, provided the signature technology allows for unique identification and prevents alterations to the file, and if the note is non-negotiable and enforcement is sought between close parties. Broader recognition would require legislative reform or a technological framework ensuring document uniqueness.

41866-12-23 Bizzy Finance Ltd. v. Enforcement and Collection Authority (Petah Tikva Magistrate’s Court, Judge Limor Halad-Ron, Feb. 11, 2025)

Case Summary:

Bizzy Finance Ltd., a company with a business model based on electronic signatures of promissory notes, sought to initiate enforcement proceedings for a digitally signed promissory note through the execution office. The registrar of the execution office rejected the request, citing that the law does not recognize digital promissory notes. In her decision, the registrar noted the position of the Ministry of Justice, which stated that there is difficulty in approving the execution of a digitally signed note, as the Bills of Exchange Ordinance is based on the presumption of a physical world only. It was also noted that legal recognition of a digital signature would have broad implications, including for checks.
Bizzy Finance’s Arguments:
Digital notes should be enforceable.
The Electronic Signature Law supports the admissibility of digital signatures.
The physical dimension is addressed by the Check Clearing Law (2016), which recognizes electronic copies.
Promissory notes don’t require physical possession under the Interpretation Law (1981).
The company argued the enforcement office overstepped its authority by denying enforcement.
Opposition from the Enforcement Authority:
Promissory notes must be physical under current law.
Negotiability depends on physical delivery.
The risk of digital forgery and repeated use of the same file complicates enforcement.
Court Ruling:
Electronic signatures are valid for non-negotiable notes between close parties if signed with secure technology.
Legal flexibility is supported by the Electronic Signature Law and commercial practices.
The court emphasized fairness and competition with banks, stating that preventing digital notes limits competition.
Conclusion: The enforcement office must allow enforcement of such digital notes and adjust its internal procedures accordingly.

Guarantee or Indemnity Commitment

In a class action regarding travel insurance, plaintiffs claimed they were unknowingly charged for personal accident coverage. The insurer, Clal, denied the claims but agreed to compensate customers who canceled their policies within six months.

24102-04-18 Mercantile Discount Bank Ltd. v. Dankner et al (Tel Aviv District Court, Judge Gershon Gontovnik, Dec. 22, 2024)

Case Summary:

Mercantile Discount Bank’s claim against developers Dankner, Elhadaf, and Fritzker was partially accepted. They were ordered to repay the remaining debt of a construction company (Lucky Building and Development) based on their personal indemnity commitment for the company’s debts.
The developers purchased land and contracted with the construction company to execute the building project, while the bank provided the necessary financing. When the project encountered difficulties, to ensure its continuation and debt repayment, a new agreement was signed between the developers and the bank, including a commitment by the developers to repay part of the company’s debt to the bank, if such debt remained. Years later, disputes arose, and the bank demanded that the developers repay the construction company’s remaining debt according to the aforementioned agreement.
The developers refused to repay the debt, arguing that their commitment was not an indemnity but a guarantee, and therefore they were exempt from payment under the Guarantee Law, which links the primary debt with the secondary obligation in a guarantee, such that if the former is reduced, so is the latter.
The court determined that the commitment was an indemnity, not a guarantee, being independent rather than secondary to the primary debt, based on several characteristics, the main ones detailed below:
- Degree of obligation independence – A guarantee is a commitment to fulfill another’s debt and is attached to and dependent on the primary debt. In contrast, an indemnity commitment is a self-commitment, detached from the primary obligation. In this case, it was determined that the obligation undertaken by the developers was independent of the bank, as it came into existence to enable the loan to the construction company, not to serve as security for the loan. The developers’ commitment was given when the company’s debt to the bank already existed, to advance the developers’ own interests, who were willing to indemnify the bank to receive the benefits of the arrangement. Therefore, it was determined that the connection between the developers’ commitment and the company’s debt was distant enough to exclude it from being a guarantee.
- Effective date of the obligation – The defendants’ commitment to bear the obligation did not arise with the signing of the debt arrangement but was conditional on several conditions in the debt arrangement, and only afterward would the commitment take effect. This characterizes an indemnity commitment, not a guarantee, since, in contrast, a guarantee constitutes an obligatory duty to fulfill the defendant’s primary obligation, which takes effect with the guarantee’s entry into force and is not dependent on the occurrence of damage.
- Content of the obligation – The developers’ commitment was not to pay a predetermined sum of money as compensation, nor to bear all the remaining debt of the construction company, but only one-third of it, and only after certain conditions specified in the agreement were met. The developers committed to indemnify a creditor for losses caused to him due to the debtor’s non-fulfillment of his obligation, as opposed to a commitment to fulfill the primary debtor’s obligation to the creditor.
- Absence of an explicit guarantee document – Besides the characteristics relating to the nature of the commitment, the court found support for its conclusion in the fact that the bank did not define the signed agreement as a guarantee, and no formal guarantee document was signed (unlike other guarantee documents signed by the developers in their relationship with the bank). However, the court clarified that the absence of a document titled “Guarantee Document” is not conclusive evidence that it is not a guarantee, but it may be circumstantial evidence of how the parties viewed things at the time, considering the strict obligations applicable to banks in this context.
Accordingly, it was ruled that the developers must pay their share to the bank according to the agreement.

Regarding the developers’ ability to reclaim from the company, as a side note, the court accepted the third-party notice submitted by the developers to join the construction company and Nevo (the shareholder in the construction company) to the proceedings and determined that the construction company and Nevo would bear a total payment of 1,500,000 NIS.

We are at your service for any questions or clarifications via email or phone: 03-3075000

Best regards,
Banking, Finance & Credit Insurance Department
Shibolet & Co.

The contents of this memo are for general informational purposes only and should not be relied upon in any specific case without additional legal advice.