5 Trends to Watch: 2023 Israeli Business

Distressed Transactions Get More Creative – Expect to see more companies in need of creative financing solutions, and investors who are specialized in distressed situations. Companies will need to think outside the box to monetize assets and consider their strategic alternatives in the event that traditional venture and capital markets deals are not as accessible as before.

Restructuring and Selective Hiring – Companies will need to look inward at their human capital to evaluate which team members contribute the most to the company’s immediate and long-term value. Restructuring and reductions will be coupled with selective hiring to take advantage of a larger pool of candidates. Employees who are creative and resilient are most likely to lead their companies to the light at the end of this tunnel.

Insurance to Play Bigger Role – Expect more use of Representation and Warranty Insurance (RWI) in 2023. This has become the market standard in the U.S. and the UK, with ever increasing penetration in Israel. Other insurance products are also key to prioritize, such as robust D&O, cyber, and other business insurance programs.

Debt Restructurings and Tax Considerations – With higher interest rates and fears of a 2023 global recession, expect to see an increase in company restructurings and debt workouts. Modifications to company debt obligations can have significant U.S. federal income tax consequences, including the potential to create cancellation of indebtedness income for the borrower or its owners and original issue discount for the holders of the restructured debt. Israeli and other non-U.S. lenders to U.S. companies likely will be focused on whether such transactions could cause them to recognize income “effectively connected” with a U.S. trade or business, thereby increasing their U.S. tax and reporting obligations. 

The Year of AI – One area of law that’s rapidly changing is the privacy considerations surrounding the use of personally identifiable information and other privacy-related data for artificial intelligence (AI). If a data processor, for instance, uses data supplied to it by a data controller to train the processor’s AI models, does that effectively turn the processor into a co-controller over the same data? And if it does, is the processor then required to notify its counterpart, the data controller, of its intended use or perhaps even notify the data subject of the fact that their data is being used by the processor for its own benefit? Is it even fair that the subject was never given the opportunity to decide if the person’s data could be used for this purpose? This area of privacy law is likely to unfold at a much quicker pace than other areas, and also be tackled from many different angles – industry, geography, nature of data, among others.