The District Court of Tel Aviv
("Court") was recently asked to find
that certain dividend distributions
("Distributions") that were approved by
the directors of a public company
("Company") were prohibited, had led to
the Company's collapse, and that the directors were personally
liable for repaying the amount of the Distributions and the value
of the Company's outstanding debts.
In coming to its decision, the Court discussed the two-fold test
that must be passed prior to the approval of a distribution of
dividends: the earnings test, which is technical and
accounting-based, and the solvency test, which considers whether a
distribution will likely affect a company's ability to satisfy
its creditors. Passing the solvency test requires more than a
simple predominance of assets over liabilities according to the
company's balance sheet; rather, it demands that a board of
directors establish, based on information available to them at the
time, that the company can meet
