LAW: New Companies Act - Don't Get Stumped
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The 2008 Companies Act will revise the rules on dividend distributions. If you thought you could avoid their applicability by declaring dividends before the effective date of the Act, think again.
This is according to Larry Stein, partner at Webber Wentzel. There is as yet no certainty as to when the Act will come into force and effect, although the Department of Trade and Industry has advised that the effective date of the Act is now likely to be 1 May 2011.
The new requirements do not only apply to dividend declarations which occur after the effective date. The Act specifically states that all dividend distributions which were approved, but not fully implemented, before the effective date must be re-authorised in terms of the Act before they are paid out.
But what does this mean exactly?
On a practical level, it means that directors must (re)consider all declared (but unpaid) dividend distributions prior to the effective date in light of the Act's more nuanced and intricate solvency and liquidity test and pass a resolution to this effect.
The Act imposes more detailed requirements regarding when and how the test should be satisfied and contemplates the possibility of personal responsibility on directors where distributions are made in contravention of the Act.
Stein says, "It might be worthwhile for companies to consider fully paying their declared dividends prior to the effective date of the Act so as to fall under the existing Act."
Stein concludes, “Ultimately, companies cannot afford to be complacent in their approach to the Act and the position on dividend distribution is merely one clear example of where this is true.”
Business News Sector Tags: Law| Local Government|