When a contractor goes bankrupt in the middle of construction, apartment buyers discover that the question is not only whether they will get the apartment, but also who will compensate them for the months, and sometimes years, they spent waiting for it. Israel's Supreme Court recently decided that question in a judgment written by Justice Ruth Ronen, with Deputy President Noam Sohlberg and Justice Yael Willner concurring. According to a Globes report of October 8, 2026, this is the first time the court has held that a financing party that chooses to complete a project after the contractor collapses cannot perform the sale contracts selectively: it cannot collect the full price from the buyers while walking away from the duty to compensate them for the delay.
What happened in the Bat Yam project
According to Globes, the case concerned a building-strengthening project in Bat Yam, under which the contractor received rights to build 14 new residential units. Construction was funded through financial accompaniment: lending companies extended loans and took charges in return. According to a Psakdin report published on ynet on October 19, 2026, the contractor undertook to deliver the apartment within 24 months of receiving the building permit, which was issued in December 2017, and to pay compensation for any delay of more than 60 days in accordance with the Sale (Apartments) Law, 5733-1973.
The company failed to repay the loans, and in January 2021 a receiver was appointed. The receiver and the lending companies decided to complete construction on the basis of the existing contracts. The other buyers received their apartments, the last of them by April 2025, but the appellants' apartment has not yet been delivered, and they have not been paid compensation for the delay.
The buyers asked the court to hold the receiver liable for the compensation or, in the alternative, to let them set it off against the balance of the price they had not yet paid. The receiver and the lenders responded that the duty to deliver on time rests with the contractor alone, that their obligation to the buyers is limited to the guarantees, and that the contract prohibits set-off. The District Court accepted their position, and the buyers appealed.
The contractor went bankrupt and the receiver is finishing the job: the ruling
The Supreme Court allowed the appeal. According to the Psakdin report, the court held that although the proceeding was presented as the enforcement of charges, its substance requires applying insolvency law, and the receiver acts for the benefit of all creditors, including the buyers. A party that chooses to complete construction cannot collect the full price while unilaterally denying the buyers their right to compensation.
The court distinguished between two periods. For the delay that preceded the receiver's appointment, compensation will be paid only after the debts to the lending companies have been repaid. For the delay since the appointment, compensation will be paid ahead of them, and the buyers may set it off against the balance of the apartment price. The case was remanded to the District Court to examine entitlement and calculate the amount, and the respondents were ordered to pay costs of NIS 25,000.
Globes adds an important distinction: subordinating the lender's rights to the buyers' rights concerns the order of priority over the funds in the pool, and does not make the bank or the receiver personally liable. The compensation is paid out of the project funds, before the lender receives its share, and not out of the pocket of whoever financed the construction.
The money you paid: which securities protect you
The judgment deals with compensation for delay, but the first question buyers ask when a contractor collapses is what became of the money they paid. Under the Sale (Apartments) (Assurance of Investments of Apartment Purchasers) Law, 5735-1974, as explained on Kol Zchut, a contractor may not receive more than 7% of the apartment price unless it has secured the buyer's money in one of five ways: a bank guarantee, insurance with an insurance company, a first-ranking mortgage in the buyer's favor on the apartment or on a proportional share of the land, registration of a cautionary note (he'arat azhara), or transfer of ownership to the buyer.
Your actual protection depends on the security you received. A bank guarantee or an insurance policy lets you claim the money from an outside party, while a cautionary note is designed to protect your right to the apartment itself. According to Kol Zchut, a contractor that provided a bank guarantee or insurance may replace it with a different security only after construction has been completed, possession has been delivered to the buyer, and the contract does not prohibit the replacement. A buyer who did not receive a security as required by law may file a complaint with the Supervisor of the Sale Law.
What to do when the contractor becomes insolvent
Buyers whose contractor has become insolvent need to act quickly and methodically. First, gather the documents: the contract and the specifications, the guarantees or policies, the payment confirmations, and every letter postponing the delivery date. Then check, for every payment that crossed the 7% threshold of the apartment price, which security was issued for it.
Second, find out which officeholder was appointed, a receiver or a trustee, and submit your claims to that officeholder in writing, including the compensation for the delay. In light of the judgment, it makes sense to calculate the delay before the appointment and the delay after it separately, because they rank differently. You can estimate the statutory compensation with the late delivery compensation calculator (in Hebrew), and we explain how it is calculated in our guide to compensation for late delivery of an apartment.
Finally, do not sign a waiver or a contract addendum that gives up the compensation as a condition for receiving the keys before you have checked what it means. The judgment makes clear that whoever completes the project may not pick only the parts of the contract that suit it. We discuss the rights of buyers against contractors and officeholders on our apartment buyers against contractors page.
If your contractor has stopped building or a receiver has been appointed in your project, Kobi Bell Law Firm, with offices in Modiin and Tel Aviv, can review the documents and the options in your specific case.
Questions and answers
My contractor went bankrupt. Is the money I paid lost?
Not necessarily. Under the Sale (Apartments) (Assurance of Investments of Apartment Purchasers) Law, as explained on Kol Zchut, a contractor may not receive more than 7% of the apartment price without securing the buyer's money in one of five ways: a bank guarantee, insurance, a mortgage in the buyer's favor, a cautionary note (he'arat azhara), or transfer of ownership to the buyer. How well you are protected depends on the security you actually received, so the first step is to check it.
Who pays compensation for late delivery when the contractor collapses?
According to the Supreme Court judgment reported by Globes and Psakdin in October 2026, when a receiver acting for the lenders completes the project, compensation for the delay from the receiver's appointment onward is paid out of the project funds ahead of the debt to the lenders. Compensation for the delay before the appointment is paid only after the lenders have been repaid. According to Globes, this is an order of priority over the funds in the pool, not personal liability of the bank or the receiver.
Can I set the compensation off against the balance I still owe?
According to the Psakdin report, the Supreme Court held that buyers may set off, against the balance of the apartment price, the compensation for the delay from the receiver's appointment onward, even though the receiver and the lenders argued that the contract prohibits set-off. The exact amount will be determined by the District Court, to which the case was remanded.
Source: Globes (Hebrew), 8.10.2026; Psakdin on ynet (Hebrew), 19.10.2026; Kol Zchut: Securities for buyers of a new apartment (Hebrew), checked 9.11.2026
First published in Hebrew. Read the Hebrew original