Welcome to the eighth installment in our series of articles providing an overview of the various aspects relating to the venture lending industry in Israel, including some of the legal, commercial and regulatory factors that should be taken into consideration by anyone looking to enter into this realm. The main goal of this series is to equip readers with valuable knowledge and understanding of the venture lending landscape in Israel, helping them navigate and capitalize on the unique opportunities it presents, particularly for those looking to become stakeholders in the Israeli startup ecosystem. In our eighth installment below, we provide a high-level overview regarding the technicalities surrounding perfection of security interests in Israel with various governmental authorities, each of whom have their own set of requirements for registration and timeframes for the effectiveness of such perfection.
Background
Israeli security arrangements are typically documented separately from the main loan/credit agreement and the security interest, and in certain cases, the security agreement itself, is registered locally with the applicable registrar(s). Security interests over assets of Israeli companies are registered with the Israeli Registrar of Companies, whereas security interests granted by Israeli individuals, Israeli partnerships or foreign entities are required to be registered with the Israeli Registrar of Pledges. Certain asset classes require filings with additional registrars such as the Israeli Patents Registrar (in the case of patents registered in the State of Israel) and the Israeli Land Registrar (in the case of real property located in the State of Israel). Under Israeli law, for a security interest to be effective against third parties – including transferees, liquidators or competing creditors – it should be properly registered with the relevant Israeli authority. Upon formal registration, the applicable registrar will issue a registration certificate or confirmation (in Hebrew), and the security interest will thereafter appear on such registrar’s database, which is publicly accessible in the Hebrew language.
Registrar of Companies
For Israeli companies and registered foreign branches, security interests over assets are registered with the Registrar of Companies, with retroactive perfection effective as of the creation (signing) date, if filed with the registrar within 21 days of creation. To the extent that such filing is not made within the 21-day timeframe, perfection shall only be effective as of the date of formal registration. The filing submission itself includes basic details of the secured party and a Hebrew language description of the collateral and the secured amounts.
As part of the registrar’s requirements, the underlying security agreement must be included as part of the submission, with the respective parties’ original wet-ink signatures thereto included. Accordingly, the security agreement becomes part of the public record. This is, among other reasons, why it is recommended to have a standalone Israeli security agreement in order to avoid a scenario whereby the main transaction document, which includes the main commercial terms of the transaction, becomes accessible to the public.
In recent years, the registrar has enabled such filings to be made via its online portal, which has streamlined the process and importantly led to registration typically occurring within minutes of filing, automatically. This represents considerable progress compared to physical filing at the registrar’s offices, which usually incurred a processing time of a few business days, and sometimes longer. Among others, legal counsel for one of the parties can make such online filings, provided that they have been granted a limited power of attorney by each party. Accordingly, such powers of attorney are nowadays commonly included as ancillary documents in Israeli lending transactions. Notwithstanding these advances, the filing itself requires a certification that the copy of the security agreement is a true and correct copy of the original. There is currently no clear statutory framework or guideline related to the status of electronic signatures as ‘original’, the result is that the attorney processing the filing will likely still need to receive the parties’ original wet-ink signatures to the security agreement in order to provide the requisite certification.
There are no processing fees incurred in connection with such registration filings.
Registrar of Pledges
Security interests over the assets of individuals, partnerships and non-Israeli companies are registered with the Registrar of Pledges and become effective against third parties from the date of registration (i.e. there is no retroactive perfection in such cases). In practice this means that such filings typically should not be done on a post-closing basis. As opposed to the Registrar of Companies, the Registrar of Pledges does not require the underlying security document to be included as part of the submission, which simplifies the process.
Similarly to filings with the Registrar of Companies, filings to the Registrar of Pledges can be made via its online portal or by hand. However, in the case of online filings, the processing time is not always immediate and can take up to three business days. Limited powers of attorney are similarly required for online filings. Here too, the filing submission itself includes basic details of the secured party and a Hebrew language description of the collateral and the secured amounts.
Each such filing incurs a fixed processing fee, payable upon filing (if made online), or in advance (if a physical filing), with the applicable fee rate fluctuating depending on the contemplated duration of the security interest. At the time of writing, the fee for the online filing of security interests with a contemplated duration of over five years is roughly US$ 64.
Registrar of Patents
Security interests over patents or patent applications registered in Israel are also required to be registered by the Israeli Patents Registrar within 21 days of their creation, otherwise such security interest will not be deemed effective.
Similarly to the filings with the Registrar of Companies, such filings must include the underlying security agreement, as well as a limited power of attorney from at least one of the parties, specifically referencing the applicable patent(s) and/or patent application(s). The processing time for such filings can take several days, and normally at least week, and therefore, considering that perfection is only effective upon registration, and not just the filing, of the security interest, it is recommended to make such filings as soon as possible following the creation of the security interest. Depending on the structure of the transaction, such as whether or not there is a collateral agent appointed by multiple lenders, the registrar may ask for additional documentation or clarifications as part of their review of the submission, including the authorization and appointment of the agent on behalf of the lenders.
Filings with the Registrar of Patents are typically made via its online portal, with a separate filing required with respect to each patent or patent application. Each such filing carries a fixed processing fee, payable upon filing. At the time of writing, the fee for each such filing is roughly US$ 94.
Perfection of Foreign Security Agreements
In cases where a loan party is entering into one or multiple non-Israeli law-governed security agreements as part of a transaction, such as a Loan and Security Agreement or an IP Security Agreement, whereby all or a portion of the assets being pledged are located and/or registered in Israel, the respective security interests thereunder should also be filed and registered with the applicable registrar for local perfection requirements. As noted above, filings to the Registrar of Companies and/or the Registrar of Patents require the submission of the underlying security agreement, which would make such agreements publicly accessible. To the extent that such agreements contain confidential commercial information, a short-form agreement is another possible alternative in order to comply with local legal requirements.
About Us
Arnon, Tadmor-Levy proudly stands among Israel’s most prominent law firms, with one of the largest and most respected banking and financial services departments. We have extensive experience in cross-border and other complex financing transactions, representing both lenders and borrowers. Our trusted reputation spans a vast clientele, including leading Israeli and international banks and other financial institutions.
Our venture lending and private credit team is led by Simon Weintraub, Avi Anouchi and Idan Adar.
Should you have any questions, or are interested in learning more about the various aspects of the Israeli venture lending and private credit industry, please feel free to reach out to a member of our venture lending team, whose details are included below.
Simon Weintraub, Partner – simonw@arnontl.com
Avi Anouchi, Partner – avia@arnontl.com
Idan Adar, Senior Associate – idanad@arnontl.com
The above content is a summary provided for informational purposes only and does not constitute legal advice. It should not be relied upon without obtaining further professional legal counsel.
