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Banks Lobby Hard to Defend Control Over Ailing Firms

The banks have sent a battery of representatives to press their case with the committee at the two hearings held so far on the bill.

The banks are lobbying the Knesset Constitution, Law and Justice Committee to revise a proposed law that challenges the primacy of their right to repayment in the corporate recovery process.

The banks have sent a battery of representatives to press their case with the committee at the two hearings held so far on the bill.

The legislation would limit the power of the ailing companies' secured creditors, including banks, to stand in the way of implementation of a company's recovery plan with onerous repayment demands.

The Justice Ministry says it is willing to compromise on the legislation, but not on the basic goal of moderating the power of secured creditors, such as banks, in the corporate recovery process. Meanwhile, the Knesset committee is leaning toward the banks' position that they are entitled to be reimbursed for their losses ahead of other creditors, including publicly-traded companies.

The interests of creditors such as bond-holders in the public-traded companies have not been fully represented before the committee.

Among those appearing before the panel on the banking industry's behalf was Assaf Hamdani, a Hebrew University law professor who several years ago headed a public committee that looked at ways to increase the involvement of institutional investors in the capital markets.

Absent from the Knesset committee's deliberations were representatives of institutional investors, including provident funds, to speak on behalf of the public and small investors. The two committee hearings on the bill were only attended by four of the 13 Knesset members on the panel. By contrast, the banks and the Association of Banks in Israel had six spokesmen at the hearing.

The bill, which will have another hearing on Tuesday, is expected to be fast-tracked for approval.

Previously, Deputy Attorney General Avi Licht, who drafted the bill, told the panel that secured creditors, particularly the banks, hold excessive power over the recovery of ailing companies. "We have no intention to harm the banks' interests in getting back the money they loaned," Licht said, but added that theirs is not the only interest involved.

For his part, Hamdani said the banking industry's objections lay in far-reaching aspects of the law that are not necessarily appropriate to the Israeli economy.

He acknowledged, however, that even in an ideal world, the banks would not be pleased to have their power reduced by legislation.