On 14 December 2012, the Australian Government released an
exposure draft Bill, the Corporations Legislation Amendment
(Remuneration Disclosures and Other Measures) Bill 2012 (Bill),
which proposes amendments to section 254T the Corporations Act
2001 (Cth) (Act). Section 254T deals with the requirements to
enable a dividend to be declared or paid.
Originally, section 254T simply required a dividend to be paid
out of profits. From 28 June 2010 the section was amended so that a
dividend could only be paid if:
The company's assets exceeded 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.
Assets and liabilities are to be calculated in accordance with
the accounting standards (whether or not the company is required to
prepare a financial report).
The proposed amendments:
Retain the assets test but apply it immediately before the
declaration of a dividend or, if the dividend is not declared,
immediately before it is paid
Remove the requirement that the payment of the dividend is fair
and reasonable to the company's shareholders as a whole
Remove the requirement that the payment of the dividend does
not materially prejudice the company's ability to pay its
creditors, but substitutes a requirement that the directors of the
company reasonably believe that the company will, immediately after
the dividend is declared or, if not declared, paid, be solvent
Allow companies that are not required to prepare a financial
report to calculate their assets and liabilities by reference to
their financial records.
Although these proposals address some of the deficiencies
identified in the current rules, other deficiencies have not been
addressed. These include the interaction with the capital
maintenance rules in in Chapter 2J of the Act. The proposed changes
do not change the taxation arrangements for dividends.
The Bill is the second tranche of reforms since 2010, designed
to build on the additional powers shareholders have over the pay of
company directors and executives.
As this is an exposure draft Bill, interested persons are able
to make submissions on the proposed amendments. Submissions close
on 15 March 2013 and can be made via the
DLA Piper can also provide a copy of the current Act,
supplemented with the proposed changes set out in the Bill upon
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
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