Changes to paying dividends

The Corporations Amendment (Corporate Reporting Reform) Bill 2010 was introduced on 26 May 2010 to repeal the profit test and replace it with a more flexible requirement. The amendment allows companies to pay dividends if:

•     the company’s assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for payment of the dividend;

•     it is fair and reasonable to the company’s shareholders as a whole; and

•     it does not materially prejudice the company’s ability to pay its creditors. Where the payment results in the company becoming insolvent, it will clearly prejudice the company’s ability to pay creditors.

The Bill, once enacted, will be effective from the date of royal assent.