Edited by: Noemie Even Ezra Mizrahi
The contractor collapses in the middle of construction. The bank financing the project has a receiver appointed and decides to complete the project itself. The apartment is finally delivered, but months, and sometimes years, late. Who will compensate the buyers for the delay? In this case law update, we present a leading Supreme Court ruling, written by Justice Ruth Ronen, which gives a clear answer to this question and changes the rules of the game between home buyers and financing entities.
The Sale (Apartments) Law, 5733-1973 (hereinafter: “the Sale Law”), provides in Section 5A that where the seller delivers the apartment more than 60 days after the delivery date set in the contract, the buyers are entitled to compensation for the delay. But when the contractor has gone bankrupt, it is usually unable to pay that compensation.
The question to be decided was therefore the following: when the contractor collapses and the lending entity chooses to complete the construction and collect the balance of the price from the buyers, is it also required to pay them compensation for the late delivery?
The facts
First, a few words about the financing method behind the case. Most residential construction projects in Israel are now financed through “closed financial accompaniment”: a financing entity (a bank, an insurance company or a non-bank lender, hereinafter: “the lending entity”) grants the contractor credit to build a specific project and, in return, the whole project is encumbered by a charge in its favor. A dedicated bank account is opened for the project (“the accompaniment account”), into which all revenues are paid and from which all expenses are settled; buyers pay the price only through payment slips issued by the lending entity. This method has clear advantages for all parties: the contractor obtains financing that allows it to build; the buyers know that their money is used only for the project in which they bought (and not, for example, for another project of the contractor), and receive for each payment a bank guarantee under the Sale Law, which ensures the refund of their funds if the apartment is not delivered; finally, the lending entity closely monitors the progress of the project and the funds, and holds a charge over the project itself.
In this case, a construction company (hereinafter: “the construction company”) had undertaken to carry out a TAMA 38 project (strengthening of the building) in a residential building at 63 HaNevi’im Street in Bat Yam and, in return, to build 14 new apartments there and sell them. On 15.11.2017, a financial accompaniment agreement was signed with Yesodot and with Ayalon Insurance Company (hereinafter: “the lending companies”), and the building permit was obtained on 20.12.2017.
Even before the construction company ran into difficulties, the appellants (hereinafter: “the buyers”) had bought one of the new apartments from it. The sale contract provided that the apartment would be delivered no later than 24 months after the building permit was obtained, that is, by 20.12.2019 at the latest, and that a delay of more than 60 days would entitle the buyers to compensation under the Sale Law. The apartment was not delivered on time and, from 18.2.2020 (60 days after the delivery date), late-delivery compensation began to accrue in the buyers’ favor. The other buyers in the project received their apartments by April 2025 at the latest, while the appellants’ apartment had still not been delivered to them at the date of the ruling.
At a certain point, the construction company stopped repaying its loans. The lending companies applied to the court and, in January 2021, a receiver was appointed (hereinafter: “the receiver”). A receiver is a lawyer or accountant appointed by the court, usually at the request of a secured creditor, in order to take control of the encumbered assets and realize them, that is, convert them into cash from which the debt will be repaid.
At this stage, the lending companies had two options. The first option: pay the buyers the Sale Law guarantees, that is, refund all the sums they had paid until then, and then sell the project to another developer, “cleansed” of any commitment to the buyers. In that case, the buyers get their money back but are left without an apartment. The second option: “step into the contractor’s shoes” by completing the construction through the receiver, delivering to the buyers the apartments they bought and collecting from them the unpaid balance of the price. The lending companies chose the second option, thereby avoiding payment of the guarantees and reimbursing themselves from the project’s own funds.
In February 2022, the buyers applied to the district court asking it to order the receiver to pay them the late-delivery compensation or, alternatively, to offset it against the balance of the price they still owed. The receiver and the lending companies opposed: in their view, the obligation to deliver the apartment on time rested solely on the construction company; their only commitment to the buyers was the issuance of the guarantees; and, as secured creditors, they ranked ahead of the buyers. In February 2023, the Tel Aviv District Court adopted this position and rejected the buyers’ claim, holding that, with the completion of the project, a “new contract” had in fact been formed between the receiver and the buyers, which contained no compensation undertaking. The buyers appealed to the Supreme Court.
The decision
The Supreme Court (Justice Ruth Ronen, with the agreement of Deputy President Noam Sohlberg and Justice Yael Willner) unanimously allowed the appeal. The Court began with a preliminary question: what is the nature of the charges granted to the lending companies. The law distinguishes between two types of charges. A fixed charge applies to a specific, identified asset (for example, a particular apartment), which the owner cannot freely dispose of without the creditor’s consent. A floating charge, on the other hand, “floats” over all of the company’s assets, or over a set of constantly changing assets, and the company may continue to use and dispose of those assets in the ordinary course of its business. Only when the creditor realizes the charge does it “crystallize” and attach to the assets held by the company at that moment.
Although some of the charges were described as “fixed” in the accompaniment agreement, the Court examined their substance rather than their label, and held that they were floating charges: they applied to “all the rights in the project” (contractual rights, sums to be paid in the future into the accompaniment account, building materials, buyers’ payments, etc.) and not to a specific asset. Moreover, the construction company continued to run the project as a “going concern”: it signed contracts with buyers, collected their payments, bought materials and paid suppliers and subcontractors. The pool of encumbered assets therefore changed from day to day, which is precisely the hallmark of a floating charge.
This classification has a decisive practical consequence. Under Section 194(b)(2) of the Companies Ordinance, when a receiver is appointed to realize a floating charge, the law treats the company as if insolvency proceedings had been opened against it (a kind of bankruptcy of the company). As a result, the receiver is no longer merely the “agent” of the lending entity, tasked with collecting the debt on its behalf, but a court-appointed officer, required to act in the interest of all the creditors, including the home buyers.
On the merits, the Court held that, once the lending entity chose to complete the construction, the sale contracts with the buyers continue to apply in full, and the receiver steps into the shoes of the construction company with respect to all of its obligations. The lending entity does not have a power of “selective completion of the project”: it cannot collect from the buyers the full price provided in the contract while ignoring the clause that entitles them to late-delivery compensation. The only way to change the contract is to cancel it in its entirety, with the court’s authorization, or to obtain the buyers’ own consent. In the words of Deputy President Sohlberg, such a contract “cannot be adopted by half, by a third or by a quarter; it is a ‘package deal’”.
To understand the final outcome, one must know the concept of the “creditors’ estate”: it is the entirety of the funds that the receiver collects during the proceedings (mainly the balances of the price paid by the buyers and the proceeds of the sale of apartments not yet sold), and from which the receiver pays the creditors in an order of priority set by law. At the top of that order are the “costs of the proceedings” (the costs resulting from the conduct of the proceedings themselves); only afterwards are the creditors (including the lending entity) repaid.
In this context, the Court divided the late-delivery compensation into two periods. The first period runs from 18.2.2020 until the appointment of the receiver on 31.1.2021. Compensation for this period is a “prior debt” of the construction company (an unsecured claim), which does not rank ahead of the lending companies’ rights; in practice, the buyers’ chances of recovering it from the estate are therefore slim. The second period runs from the appointment of the receiver until the actual delivery of the apartment. The Court explained that the compensation obligation renews every month; since the receiver chose to continue the contract, late-delivery compensation from that date on is part of the costs of the proceedings he conducts. This compensation is therefore classified as a “cost of the proceedings” and is paid from the estate before the lending companies. The Court added that this will also encourage receivers to complete construction as quickly as possible. It should be stressed that this is not a personal liability of the lending entity out of its own funds, but a decision on the order of repayment from the funds of the estate.
As for set-off (that is, the buyers’ ability to pay a reduced balance of the price, lowered by the amount of the compensation owed to them), the Court again distinguished between the two periods. For the period before the receiver’s appointment, there is no right of set-off. Set-off gives the creditor an advantage comparable to that of a secured creditor, since it allows it to recover its entire claim instead of sharing proportionately with the other creditors. Such an advantage would come at the expense of the lending companies and is incompatible with the financial accompaniment mechanism; this is also why it was expressly prohibited by the sale contract. By contrast, for the period after the receiver’s appointment, the buyers may set off: these obligations are “costs of the proceedings”, which are no longer subordinate to the rights of the lending companies, so that “there is no longer any obstacle to recognizing a right of set-off with respect to them”. In any event, for this period the buyers should receive the full compensation before the lending companies, whether by set-off or as part of the distribution of the estate’s funds.
Ultimately, the case was remitted to the district court, which will decide on the buyers’ entitlement to compensation and its amount in accordance with these rules, and the respondents were ordered to pay the buyers’ costs in the amount of NIS 25,000. The Court left the door open to agreements: a lending entity may negotiate with the buyers and agree with them on a waiver or a limitation of the compensation as a condition of completing the construction (Deputy President Sohlberg expressed a reservation on this point: in his view, the buyers’ waiver of late-delivery compensation as a condition for handing over the apartment could be void under Section 7A of the Sale Law, which does not allow derogation from its provisions to the buyer’s detriment).
The ruling has important practical consequences: buyers of homes in a project placed under receivership do not lose their right to compensation for delay, at least from the date the receiver is appointed; as for lending entities, they will now have to factor this cost in when deciding whether to complete a project or pay out the guarantees under the Sale Law.
(Civil Appeal 3301/23 Midili et al. v. Ibui Binui Project - 63 HaNevi’im Street, Bat Yam Ltd. et al.; judgment delivered on 07.10.2026).
Supreme Court - Jerusalem