Pension funds in insolvency after the debtor's death
Dec 31, 2025
By: Shlomi Hadar, Esq.
Background
Transfer of Funds to the Trustee
In an important ruling issued by the Supreme Court in Civil Appeal 8990/22, a binding precedent was established on the question: To whom are pension monies accumulated by a debtor who was declared bankrupt and passed away before the monies were realized vested - to the beneficiaries according to the pension fund regulations or to the creditors' fund?
On January 29, 2015, the debtor filed a request for a receivership order and to be declared bankrupt. On March 12, 2015, a receivership order was issued for his assets, and subsequently he was declared bankrupt on September 26, 2016. Debt claims were filed against him in a total amount of approximately NIS 280,000, of which claims amounting to approximately NIS 190,000 were approved, while approximately NIS 80,000 accumulated in the creditors' fund.
During his lifetime, the debtor accumulated approximately NIS 329,000 in the pension fund managed by Menora Mivtachim Pension and Provident Fund Ltd., with approximately NIS 127,000 attributed to the severance pay component and approximately NIS 202,000 to the benefits component. In the reports submitted to the respondent Official Receiver and to the District Court, the trustee noted the existence of the pension monies, but emphasized that the debtor refuses to realize them. It is important to note that from the first report until the debtor's death, the trustee did not approach the court with a request to realize the monies, and no judicial order was issued on this matter.
On December 26, 2021, the debtor passed away, and following this, the trustee approached the court with a request for an injunction and prohibition on disposition of the pension monies.
The parties' claims
Menora claimed that after the debtor's death, it is not possible to transfer the deceased debtor's rights in the pension fund to the trustee. According to Menora, pursuant to the provisions of the pension fund regulations, rights accumulated by a member in a pension fund are converted upon his death into a right to receive a pension or payment that is first attributed to his survivors, in the absence of such - to the beneficiaries he designated, and if there are no survivors or beneficiaries - to his heirs. Furthermore, the provision of Section 147 of the Inheritance Law stipulates that pension monies to be paid due to the death of a member are not included in the estate unless otherwise agreed. Menora added that a court ruling in another matter determined that after a person's death, pension monies are excluded from the estate, and therefore the beneficiaries prevail over the estate and its creditors.
The trustee, on the other hand, argued that the severance pay monies were vested in the creditors' fund when the debtor was declared bankrupt at the end of 2016, before he passed away, by virtue of Sections 42 and 85(a1) of the Bankruptcy Ordinance. According to him, the debtor's entitlement to redeem the severance pay monies crystallized during his lifetime upon termination of his employment, and therefore Section 147 of the Inheritance Law has no relevance to our matter. The trustee argued that the provisions of the pension fund regulations cannot override the provisions of the Bankruptcy Ordinance.
The debtor's heirs joined Menora's arguments and emphasized that the trustee did not file any request during the debtor's lifetime for redemption of the severance pay monies. According to them, since the severance pay monies were not redeemed during his lifetime, upon his death they are vested in his heirs by virtue of an independent right arising from the agreement between the debtor and Menora, which according to Section 147 of the Inheritance Law is excluded from the debtor's estate.
The Official Receiver, after changing his position, also joined Menora's position. According to him, when the debtor was declared bankrupt, his assets were vested in the trustee, including the bundle of rights arising from the pension fund. However, the bundle of rights in the pension fund remains subject to the provisions set forth in the pension fund regulations and other provisions of law, including the provisions of the Supervision Law and the Inheritance Law. When the debtor died and before the pension monies were realized, the provision of Section 147 of the Inheritance Law categorically stipulates that monies to be paid due to the member's death shall be excluded from the estate assets, and consequently from the asset pool vested in the trustee.
The District Court ruled that the monies of the severance pay component are vested in the bankruptcy estate, and ordered their realization for the benefit of the bankruptcy estate. An appeal was filed to the Supreme Court against this decision.
The Supreme Court, in a panel consisting of the Honorable Justices Ofer Grosskopf, Alex Stein, and Yael Willner, accepted the appeal and established a binding precedent on this issue.
The Supreme Court ruled that pension monies that were not realized during the debtor's lifetime, whether benefits monies or severance pay monies, and which the insolvency court did not approve their transfer to the trustee for the benefit of the creditors' fund prior to the date of the debtor's death, belong to the beneficiaries according to the terms of the pension arrangement (in our case, the pension fund regulations). This applies both under the law that applied according to the old insolvency arrangement - the Bankruptcy Ordinance, and under the law applicable according to the current insolvency arrangement - the Insolvency and Economic Rehabilitation Law.
The Supreme Court, composed of Justices Ofer Grosskopf, Alex Stein, and Yael Wilner, accepted the appeal and established a binding ruling on this issue.
The Supreme Court ruled that pension funds that were not realized during the debtor's lifetime, whether as compensation or severance pay, and whose transfer to the trustee for the benefit of the creditors' fund prior to the debtor's death by the insolvency court, belong to the beneficiaries according to the terms of the pension arrangement (in our case, the pension fund regulations). Thus, both according to the law that applied under the old insolvency arrangement - the Bankruptcy Ordinance, and according to the law that applied under the current insolvency arrangement - the Insolvency and Financial Rehabilitation Law.
Supreme Court decision
דברי סיום
This ruling establishes a clear and sharp precedent regarding pension monies in bankruptcy proceedings. The precedent clarifies that pension monies enjoy special protection, and that their transfer to the trustee in bankruptcy proceedings is not automatic, but rather conditional upon the issuance of an explicit judicial order. Since no such order was issued during the debtor's lifetime, upon his death the monies pass to the beneficiaries according to the pension fund regulations.
The precedent that was established removes the cloud of uncertainty that existed on this issue in the rulings of the trial courts, and clarifies the law both under the Bankruptcy Ordinance and under the Insolvency Law. The ruling emphasizes the importance of protecting pension monies, which are intended to ensure an adequate standard of living for the debtor (and his dependents) after retirement or in times of crisis, and the independent right of the beneficiaries according to the pension fund regulations.
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