Court Upholds Cancellation of Insolvency for Tax Offender Over Fictitious Invoices
The Lod District Court rejected an appeal by a tax offender owing eight million shekels, upholding the cancellation of his insolvency proceedings over fictitious invoices.
The Central District Court in Lod has dismissed an appeal filed by a tax offender owing creditors approximately eight million shekels regarding the cancellation of his insolvency proceedings. Judge Hanna Kitsis ruled that half of the debt, accumulated toward the tax authority through the use of fictitious invoices, is non-dischargeable.
In May 2024, at the debtor's request, an insolvency proceeding commencement order was issued and a trustee was appointed for his assets. Within the framework of the procedure, he declared debts totaling about eight million shekels, and debt claims were filed against him—among others by the Tax Authority, based on double taxation liability following the use of fictitious invoices. In July 2024, he was convicted upon his confession of VAT offenses related to the deduction of input tax and offsetting VAT using the invoices. A year later, he was sentenced to eight months of community service, a suspended prison sentence, and a fine of 35,000 shekels.
Following the verdict, the Tax Authority requested to exclude the debt from discharge, arguing that it was created through fraud. The Magistrate's Court in Rishon LeZion accepted its position and ruled that there is no economic or rehabilitative benefit in continuing the procedure, thereby ordering its cancellation. The debtor appealed to the District Court, arguing that a conviction for VAT offenses does not automatically indicate fraud for the purpose of denying discharge, and that the criminal court treated the offenses as technical and of relatively low severity.
Conversely, the Tax Authority and the trustee argued that the debt was created through fraud and that continuing the procedure would not benefit the debtor or his creditors. Judge Kitsis rejected the appeal, explaining that the Insolvency Law excludes debts created through fraud from discharge, and that the use of fictitious invoices involves prior planning, trickery, and dishonesty. The ruling also addressed the trustee's claims regarding the debtor's financial conduct, including failing to exhaust his earning potential and conducting financial activity through his wife's bank account, alongside an unexplained real estate transaction. The appellant was ordered to pay legal expenses amounting to 6,000 shekels.
