November 11, 2013 "Profit Test" as a pre-condition to dividend distribution (A motion to approve Derivative Action no. 49615-04-13 Lahav Vs. IDB Development Ltd. et al.)
November 11, 2013 The Boards duties to shareholders during merger approval procedures (Civil Case 9433-11-09 Mirkaei Tikshoret Ltd. et al. Vs. Gilat Satellites Networks Ltd. et al.)
December 17, 2013 A Violation of fiduciary duty by directors and officers (Civil Case 13484-03-09 Gad Hitron et al. Vs. Adi Teler)
November 28, 2013 A mechanism to adjust the exercise price of employees stock options plan
December 24, 2013 Public Utility Authority Electricity updates Feed-in-Tariff rates of residential and commercial PV systems
January 16, 2014 The minimal overall efficiency threshold of cogeneration plants is increased from 60% to 70%

November 11, 2013 "Profit Test" as a pre-condition to dividend distribution (A motion to approve Derivative Action no. 49615-04-13 Lahav Vs. IDB Development Ltd. et al.)

The Applicant filed an application for the approval of a derivative action, regarding the decision of the Board of Directors (the "Board") of IDB Development Ltd. (the "Company") to approve the distribution of dividends in the amount of NIS 64,000,000 (the "Decision"). This Decision was made based on reliance on the Q2 2011 financial report, under which the Company complies with the Companies Law 1999 "Profits Test" requirements.  After the publication of this report, and prior to the Decision, the Company's financial status was changed, reflected in a lower valuation.  

The Directors knew about this change at the time they approved the dividend distribution, and knew that there is a real possibility that this change would affect the Company's profitability and that the Company would not be able to comply with the "Profit Test" in the financial statements which were scheduled for release two weeks after distribution of the dividend.

  • The court approved the motion, ruling that on the date the Company's Board of Directors approved the distribution of dividends the Company did not implement the "Profit Test".  The Company was therefore obliged to accept the court’s approval for distribution as a pre-condition for distribution. By failing to do so the distribution is considered a prohibited distribution.
  • The court observed that the Board was not obliged to make assessments, or to examine predictions of future revenues or losses, but rather to apply the accounting information known to them at the time of distribution, namely: that in light of the developments that occurred before the decision about the distribution, and in accordance with accounting rules, the Company did not comply with the "Profit Test" as of the date of distribution.  
  • The interpretation of Section 302 of the Companies Laws of 1999 to the term "Profits" must consider the most updated information known to the Board members regarding past events, and any such information that the Board considers possibly affecting the Company's financial statements which would be released shortly after the dividend distribution.
  • In cases when the Board was aware of the change in the company's financial status, and of the consequences of such change on the Companys’ financial statements, the Board cannot rely on the previous reports.

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