Israel Company Law 1999

Chapter 2: Preservation and Distribution of Capital

Article A: Permitted Distribution

301. (a) A company may only effect a distribution in accordance with the provisions of this Chapter; however, a company may undertake in its articles of association or in a contract not to effect distribution under restrictions additional to the provisions of this Chapter,.

(b) A distribution in contravention of the provisions of this Chapter shall be a prohibited distribution.

No contracting out

302. (a) A company may effect a distribution of its profits (hereinafter “the profit criterion”), provided that there is no reasonable suspicion that such distribution might deprive the company of its ability to pay its existing and anticipated debts when the time comes for so paying (hereinafter “the ability to pay criterion”).

(b) In this section:

“profits” for the purpose of the profit criterion – the balance of surplus or the surplus, accumulated over the past two years, whichever is the greater, in accordance with the latest adjusted financial reports, audited or surveyed, prepared by the company, provided that the date in respect of which the reports were prepared is no earlier than six months prior to the date of distribution;

“adjusted financial reports” – financial reports adjusted to the index, or financial reports which replace or will replace such reports, in accordance with accepted accounting procedures;

“surplus” – sums included in a company’s equity originating from the net profit of the company, as determined according to accepted accounting practice, and other sums included in the equity under accepted accounting practice other than share capital or premiums that are to be considered surplus, as prescribed by the Minister.

(c) The Minister may lay down provisions regarding presumptions as to the fulfillment by a company of the conditions of the ability to pay criterion, and exemptions or alleviations regarding adjustment of the financial reports.

Permitted distribution

303. (a) The court may, on the application of a company, allow it to effect a distribution in respect of which the profit criterion is not fulfilled, provided that the court is convinced that there is no reasonable suspicion that such distribution might prevent the company from being able to pay its existing and anticipated debts when the time comes for such payment.

(b) A company shall notify its creditors of the submission of an application to the court as provided in subsection (a), in the manner prescribed by the Minister.

(c) A creditor may apply to the court and oppose the application of a company to permit it to effect a distribution.

(d) The court may, after having given the opposing creditors the opportunity to put their case, approve the company’s application, in whole or in part, reject it or make the approval of it conditional.

Distribution with consent of court

304. (a) Where a company decides to allot shares with a nominal value for consideration of less than their nominal value, including bonus shares, it must convert part of its profits from share premiums or from any other source including its own equity set out in its latest financial reports into share capital, as defined in section 302(b), in the sum equal to the difference between the nominal value and the actual consideration.

(b) The court may, on the application of a company, permit it to effect an allotment of shares for consideration of less than the nominal value of the shares, other than in accordance with subsection (a), on such conditions as it may prescribe.

Allotment of shares at less than nominal value

305. The Minister may prescribe provisions for the implementation of this Chapter.

Regulations

Article B: Dividend