Home » A Company or Business in an Israeli Estate: Who Keeps It Running?

A Company or Business in an Israeli Estate: Who Keeps It Running?

When an estate includes a company, a shareholding or a going business, time works against the heirs: payroll falls due, suppliers wait, and the value of the business evaporates the day it stops trading. The Israeli Succession Law — Hok HaYerusha (חוק הירושה, 1965) — has no special regime for businesses, but it gives the estate administrator (מנהל עיזבון) the powers needed to keep one alive, while making the heaviest decisions subject to the court’s prior approval.

I. Why a business changes everything

Under Israeli law the deceased’s estate passes to the heirs on death (sec. 1 of the Law) — but it passes to them jointly, and a business does not tolerate joint ownership: a lease must be signed, a credit line renewed, wages paid, sometimes staff let go. Each of those acts needs a legitimate signatory, which heirs not yet recognised by an inheritance order (צו ירושה) or a probate order (צו קיום צוואה) cannot provide. The Law anticipates the emergency: before any appointment, the court may take whatever steps it sees fit to preserve the estate, including temporarily freezing dealings in estate assets and appointing a temporary estate administrator (מנהל עיזבון זמני) (sec. 77).

II. Who appoints the administrator, and what he may do alone

The Family Court appoints the administrator, by order, on the application of any interested party (sec. 78(a)).
Where the application is made with the consent of all parties concerned, it is filed with the Registrar of Inheritance Affairs (רשם לענייני ירושה), who may make the appointment himself, including that of a temporary administrator (sec. 78(b)).
An individual, a legal entity or the Administrator General (האפוטרופוס הכללי) may be appointed (sec. 79).

His statutory task is to gather in the estate assets, administer the estate, settle its debts and distribute the balance among the heirs (sec. 82); to that end he is empowered to do whatever is required to carry out his functions (sec. 97): to trade, collect, pay and contract day to day. At any time he may apply to the court for directions (sec. 83) — sound practice whenever a management decision commits the business for the long term.

III. The acts that require the court’s prior approval

Section 97 lists what the administrator may not do without prior approval. For a business, three heads matter:

the transfer, charging, division or winding-up of an economic unit in agriculture, industry, crafts or commerce, or of an apartment (sec. 97(1)) — in other words selling the business, pledging it, splitting it or closing it down;
any act whose validity depends on registration in a register maintained under statute (sec. 97(3)): the register of members, the Registrar of Companies, the Land Registry;
the giving of security (sec. 97(4)), which a bank will often require before maintaining a credit line.

To these are added tenancies governed by the tenant protection laws (sec. 97(2)) and any act the court itself makes subject to approval (sec. 97(5)). The administrator must also deliver an inventory of the estate (פרטת העיזבון) within sixty days of his appointment (sec. 84), account to the heirs at least once a year (sec. 86), and is liable for damage caused by a breach of his duties (sec. 88).

IV. Distribution: a business cannot be cut in slices

Before any distribution, the deceased’s creditors are invited to file their claims, publication opening a period of at least three months (sec. 99); the balance is distributed only once the debts have been settled (sec. 107).

Then comes the decisive question. The administrator proposes a distribution plan to the heirs and seeks their agreement (sec. 110). Failing agreement, the Law decides: an asset that cannot be divided, or that would lose a substantial part of its value if divided — “including a unit in agriculture, industry, crafts or commerce” — is allotted to the heir who offers the highest price, which may not fall below market price, the sum offered being set against his share of the estate; if no heir takes it over, the asset is sold and the proceeds distributed (sec. 113). An agricultural holding whose division would destroy its viability follows a rule of its own (sec. 114).

V. France and Israel: two answers to the same emergency

In France, planning is possible during the business owner’s lifetime: the mandat à effet posthume (posthumous agency) allows the administration of all or part of the estate to be entrusted in advance, in the interest of identified heirs (art. 812 of the Civil Code). Executed before a notary and accepted by the agent before the death, it runs for two years, but may be granted for five years “by reason of […] the need to manage professional assets” (art. 812-1-1): the French legislature expressly had the business in mind. Failing that, the heirs may agree on an administrator (art. 813), or the court may appoint one where an heir is inactive, in default or at fault, where the heirs are at odds, where their interests conflict, or where the estate is complex (art. 813-1). Without an administrator, co-ownership moves only by a two-thirds majority for acts of administration — and commercial, industrial and craft leases are excluded from that majority, so they require unanimity (art. 815-3).

Three differences matter in practice. Planning: Israel has no equivalent of the posthumous agency, but a testator may name in his will the person who is to administer his estate. The route: in Israel it is the lawyer who conducts the proceedings before the Registrar or the Family Court, the Israeli notary being a specially authorised lawyer (powers of attorney, certifications, translations) rather than the officer who settles the estate. European instruments: EU Regulation 650/2012 and the European Certificate of Succession do not bind Israel, so a French–Israeli estate is run on two fronts. Israel levies no inheritance tax, but a later resale of inherited real property falls under Mas Shevah (מס שבח), the land appreciation tax.

Conclusion – Why work with a lawyer experienced in estate administration?

Keeping a business alive inside an estate means running two clocks at once: the clock of the business, which never stops, and the clock of the procedure, which imposes approvals, an inventory and accounts. Abitbol & Associés brings together lawyers admitted to the Israel Bar and to the Paris Bar, as well as an Israeli notary: the application for appointment, the section 97 approvals, the distribution plan and the interface with the French file are handled in one firm.

It is with this in mind that ABITBOL & ASSOCIES, drawing on its experience in estate administration, assists its clients at every stage of managing a company or a business forming part of an estate. Our lawyers make sure your interests are protected and that every step is taken safely.