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Thought Provoking Quote

Shareholder Dividends

The payment of dividends is governed by the COMPANIES ACT 1993 and by the company's constitution, if it has one.

Payment of Dividends

A company's board of directors may authorise the payment of a dividend without needing a decision of the shareholders, unless the company's constitution says otherwise. The company must satisfy the "solvency test".

The directors may not authorise dividends to be paid to some but not all of the shareholders in a particular class, nor may they pay some shareholders in a class a greater value of dividend than is paid to other shareholders in the same class (unless payment is made in proportion to the amounts paid on shares).  However, the shareholder can waive their right to a dividend, refer to "waiver of dividends".

Solvency test

Before a dividend is paid the directors must ensure the company passes the solvency test:

• The company must be able to pay its debts as they become due in the normal course of business, and
  
• The value of the company's assets must be greater than the value of its liabilities.

If after a dividend has been paid the company fails to satisfy the solvency test, the company may recover the dividend from each shareholder, unless:

• The shareholder received the dividend in good faith without knowing that the test wasn't satisfied, and
  
• The shareholder altered his or her position in reliance on the dividend, and
  
• It would be unfair to require the shareholder to repay the dividend in full or at all

Waiver of dividends

As a shareholder you are entitled to waive your allocated dividend, provided you give written notice to the company.

Directors Liability

• A company director who fails to take reasonable steps to ensure that the necessary conditions (such as the solvency test) were satisfied before a dividend was paid will be personally liable to the company to repay the dividends or that part of them that cannot be recovered from shareholders.
  
• If the company has a constitution then any action taken or not taken regarding dividends must be in accordance with the provisions of the constitution.

Refer also to the separate web page Directors Liabilities.