The Corporations Amendment (Corporations Reporting Reform)
Act 2010 (Cth) (Amending Act) received Royal
assent on 28 June 2010. The Amending Act includes an important
amendment to section 254T of the Corporations Act 2001
(Cth) (Act) which governs the circumstances in
which companies may pay dividends.
Nature of the amendment
Under the former section 254T of the Act (prior to 28 June 2010)
a company could only pay dividends out of its profits. This was
known as the "profits test".
The new section 254T replaces the profits test with a new 3
tiered test, which provides that a company must not pay a dividend
the company's assets exceed its liabilities immediately
before the dividend is declared and the excess is sufficient for
the payment of the dividend
the payment of the dividend is fair and reasonable to the
company's shareholders as a whole
the payment of the dividend does not materially prejudice the
company's ability to pay its creditors.
Many company constitutions have provisions which mirror or
complement the old section 254T test in relation to dividends. For
example, it is common for company constitutions to include a
provision to the effect that "dividends may only be paid out
of the profits of the company".
To the extent that a company's constitution is inconsistent
with the new test in section 254T it will need to be amended.
All companies should arrange for a review of their constitution
to ascertain whether any amendments are required in light of the
introduction of the new test in section 254T of the Act.
In particular, ASX-listed companies holding AGMs in the near
future should move quickly to ensure that any necessary amendments
to their constitution are included in the notice of AGM and
shareholder approval can be sought at the AGM.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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