Background Checks
Background Check Before a Deal, Partnership or Investment: What You Can Lawfully Verify in Israel, and What You Cannot
Before you sign, wire money or take on a partner, there is a fixed list of public registries anyone can check alone. What each one holds, what you will not find there, and which signals should stop a deal.
In short
- Seven public registries cover most of what you need to know about a company or a person before a deal. All lawful, most cheap or free.
- The Companies Registrar shows who owns and who directs, but not whether the company makes money. No public registry will tell you that.
- Insolvency and bankruptcy proceedings are public information. A partner's refusal to sign a consent for that check is itself a finding.
- The signal that recurs in most fraud files we have seen: time pressure. A good deal does not vanish because of a week of checking.
- A database obtained unlawfully is an offence, even for whoever merely consults it. A lawful background check does not need it.
Every business-fraud file that has passed through our office had one point at which everything was still preventable. It was almost always the moment of signature, and almost always the information that would have stopped the deal was available, free or for a few dozen shekels, in a public registry nobody bothered to open. This article is the list we go through in every due-diligence job, arranged by what anyone can do alone.
The rule before the list: identify the right entity
The first mistake in background checks is checking the trade name instead of the legal entity. “Studio X” may be a limited company, a sole proprietor, a partnership, or three different companies that replaced one another. Before any check, ask for the company registration number or the business licence number, and for an individual, the full name as it appears on the identity card. Anyone who dodges giving a registration number before a deal has already answered part of the question.
The seven registries
1. The Companies Registrar
A company extract from the Companies Registrar is the basis of every check. It shows the date of incorporation, the status (active, dissolved, in liquidation), the registered shareholders and directors, charges over the company’s assets, and whether the company is flagged as “in breach” for unpaid fees or unfiled annual reports. An extract costs a nominal sum and arrives immediately.
What to look for: a company incorporated a few months ago presenting “twenty years of experience”; a director who appears in dozens of dissolved companies; a floating charge in favour of someone who is not a bank; the “in breach” status.
What you will not find: turnover, profit, debts to suppliers. A private company does not publish financial statements. Whoever wants to know whether the business is profitable must ask the other side for it, with an accountant.
2. The Pledges Registrar
Charges over assets other than real estate (vehicles, equipment, inventory, rights) are recorded with the Pledges Registrar. A search by identity or company number reveals to whom the entity is already pledged. When buying a used vehicle or equipment, this is the check that stops you buying an asset someone else can seize.
3. Insolvency proceedings
The Commissioner of Insolvency and Economic Rehabilitation maintains public information on insolvency proceedings of individuals and corporations. A business partner in such a proceeding, or recently out of one, is not necessarily disqualified, but he must disclose it up front. Discovering it afterwards, once signed, is a finding that changes the whole picture.
4. Judgments and decisions
The courts system and the commercial case-law databases allow searching judgments by party name. Repeated suits by suppliers, employees or customers against the same person or company tell a consistent story. The other side of the coin matters too: whoever sues everyone he has worked with will probably be your plaintiff as well.
Note that not every case is visible. Proceedings that ended in settlement, cases heard in camera, and enforcement files do not appear in an open search.
5. The professional licence registers
Lawyers, accountants, engineers, contractors, real-estate agents, investment advisers, and private investigators too, are listed in public registers kept by the bar associations or government ministries. The check takes a minute and reveals two things: whether the licence exists, and whether it is current. An “investment adviser” without a Securities Authority licence, or a “contractor” absent from the Contractors Register, is not only a business risk but sometimes an offence.
6. The official gazette
The official gazette publishes notices of company liquidations, creditors’ meetings, changes of name, and various orders. Searching a company name there sometimes reveals a history the other side preferred not to mention: a previous name, a voluntary liquidation of a prior company in the same field, or a company struck off and re-established.
7. The internet’s memory
The company website, social profiles, reviews, press, and web archives that show how the site looked two years ago. Check when the domain was registered, whether the “satisfied clients” on the site exist in reality, and whether the “team” photos are not stock images. A business claiming a decade of experience with a four-month-old domain requires an explanation.
The signals that stop a deal
From the files we have seen, these are the patterns that recurred:
- Time pressure. “The offer is valid until tomorrow.” A real deal survives a week of checking.
- Payment to a third party. The money goes to another company, to a relative’s account, or abroad, “for technical reasons”.
- A gap between the story and the extract. The declared owner does not appear as a shareholder. The registered director is someone you never met.
- Refusal of consents. Anyone who refuses to sign a waiver for an insolvency check or to present a certificate of proper bookkeeping.
- Success that cannot be verified. Clients you cannot speak to, projects with no address, “investors” with no name.
The legal line, and why it does not get in the way
A lawful background check rests on public information, on information the other side provided by consent, and on open sources. It does not rest on leaked databases, on access to accounts, or on “a friend at the bank”. The Protection of Privacy Law prohibits using information obtained unlawfully, and the prohibition applies to whoever merely receives it. Anyone offering to “pull everything on the guy” within an hour is offering material you cannot use in court, and that could turn you into a defendant.
In our experience, that line almost never gets in the way. Most business frauds surface in the public registries, because whoever cheated once left traces: a struck-off company, a supplier’s lawsuit, a charge nobody mentioned. The only question is whether someone bothered to look before signing.
When you need a private investigator
For most small deals, the list above is enough, and we recommend doing it yourself. A private investigator comes in when the amount is large, when the other side is overseas, when there is a web of companies to unpick, or when the feeling that something does not add up survives the basic checks. In such cases we build a file that cross-references all sources, adds fieldwork where needed, and ends in a factual report, one your lawyer can put on the table.
This section is general information, not legal advice. Every case is examined on its own facts.
