According to the decision of the Supreme Court, a public company wishing to distribute dividends is not obligated to take into consideration future losses for the purpose of satisfying the "Profit Test".

The decision of the Supreme Court was given in the framework of an appeal filed by a debenture holder of Discount Investment Corp Ltd. ("DASKASH") against a district court judgment from 2021. The appellant requested the court to certify a derivative action against DASKASH directors, but was rejected by the district court which approved the dividend distribution made by DASKASH in 2019.

The appeal focused on the question of whether the conditions of the "Profit Test" entrenched in Section 302 of the Companies Law, 1999 were satisfied, and consequently, whether DASKASH's dividend distribution was made according to the law?

The Supreme Court rejected the appeal and held that the profit test cannot be extended beyond the reports of the last two years given the explicit and precise definition of the profit test in the Companies Law, and given the fact that the language of the law defines its limits clearly and sharply. Therefore it cannot be deviated from.

The court clarified that its holding should not be interpreted as authorizing the board to disregard information concerning foreseen losses. On the contrary, prior to deciding on whether to make a dividend distribution, the board is obligated to consider the company's projected profits and losses. Said obligation forms an inherent part of the solvency test and also derives from general conduct obligations applicable to directors including the obligation to make decisions on the basis of all of the necessary relevant information and the obligation to refrain from conscious avoidance of both past events and potential developments. The Supreme Court clarified that notwithstanding its decision according to which the profit test is determined only on the basis of the reports of the last two years prior to the dividend distribution, it is clear that the directors may not rely only on reports which were published and turn a blind eye to an anticipated loss which has not yet been reflected in the reports.

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