A Simpler Dividend Test?!

March 1 2014

BOARDWORX BRIEFING | A Simpler Dividend Test?!

Wouldn’t that be nice!

On 10 April 2014, a package of proposed amendments to the Corporations Act 2001 (Cth) (the Act) was released, one of which was a change to section 254T of the Act in relation to the Dividends Test.

A Single Solvency Test

Currently, section 254T imposes certain conditions that must be met in order to pay a dividend – including that the company has positive net assets immediately before the dividend is declared, the payment is fair and reasonable to the company’s shareholders as a whole and the payment does not materially prejudice the company’s ability to pay its creditors.

The proposal is to replace this 3 limb test with a pure solvency test.

The test is much simpler and is more likely to achieve the underlying intent of the original section 254T, and more importantly it will remove the practical difficulties of assessing the 3 limb test.

The amendments will require directors to include in the Annual Director’s Report, details about the source of dividends paid and the company’s dividend policy, when the dividend is paid out of a course other than profits.

What should you be doing?

  • Stay tuned…