New dividend rules

17 August 2010

New dividend rules came into effect from Monday 28 June 2010. The rules replace the requirement to pay dividends from profits with a three-pronged test based on net assets, fairness and solvency.

Key take aways:

  • The profits test for paying dividends has been replaced with a “solvency” test.
  • From 28 June 2010, dividends do not have to be paid out of profits.
  • You will need to review your company’s constitution to ensure that the provisions in the constitution line up with the new rules.
  • The implications of the new rules are unfortunately not straightforward.

Key issues relating to the implications of the new rules are:

  • Whether dividends have to be declared instead of just determined; and
  • Clarifying when the test applies and how, practically, a company can ensure that it has met the test from an accounting perspective.

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The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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