Corrs’ submission to Treasury on amendments to the dividend rules
In December 2011, the Treasurer published a discussion paper inviting stakeholders to provide their views on amendments to the dividend rules in section 245T of the Corporations Act.
Corrs has since made a submission to Treasury which advocates certain amendments to the dividend provisions. The amendments are designed to address concerns of a number of our clients who have been or will be affected by the current restrictions on paying dividends.
In essence, Corrs supports Option 4 outlined in Discussion Paper, which allows a company to choose between a “profit test” or a “net asset/solvency test” in determining whether it is able to pay a dividend, subject to the following amendments:
- it is made clear that shareholder approval will not be required in order to pay a dividend out of capital;
- in calculating “net assets”, directors may take into account all circumstances which may affect the value of the company’s assets and liabilities, including valuations of assets or estimates of liabilities that are reasonable in the circumstances; and
- the “net assets” test as described above should be met as nearly as practicable before the time the relevant dividend is either “declared” or “determined”.
Corrs has also proposed an alternative to Option 4, which supports reverting to the previous profit test in section 254T and amending the Corporations Act so an equal capital reduction can be effected without shareholder approval, provided the company is able to meet the “net asset” test in respect of the capital reduction. This would have the same practical effect as Option 4, and is likely to be less confusing for shareholders, particularly from a tax perspective.
Click 'Download' to read the full submission.