Treasury has released the draft Corporations Legislation Amendments (Deregulatory and Other Measures) Bill 2014 for public comment which proposes, amongst other things, to alter the test for the circumstances in which companies can declare or pay dividends.
The test currently prohibits a company from paying dividends unless:
- the company has positive net assets following payment of dividends;
- the payment is fair and reasonable; and
- the payment does not materially prejudice the company’s ability to pay its creditors.
The proposed amendments replace the current test with a simpler pure solvency test. The new test provides that directors may only declare or pay dividends if immediately before the dividend is declared or paid, the directors of the company believe the company will be solvent immediately after the dividend is declared or paid.
Submissions on the draft Bill close on 16 May 2014.
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