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ARTICLE · 17 FEBRUARY 2013

Back to the drawing board on the dividends test

Holding Redlich
Holding Redlich
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Companies need to consider the proposed new test carefully when deciding whether or not to declare or pay a dividend.

AustraliaCorporate/Commercial Law
Philip Vickery (Formerly With Holding Redlich)
Philip Vickery (Formerly With Holding Redlich)
Michael MacMahon (Formerly With Holding Redlich)
Michael MacMahon (Formerly With Holding Redlich)
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The test under which companies can pay a dividend might be changing again. In our view, the potential changes are welcome but companies will still need to consider the proposed new test carefully when deciding whether or not to declare or pay a dividend.

In December 2012, Treasury released exposure draft legislation proposing amendments to section 254T of the Corporations Act 2001 (Cth) (Corporations Act), being the dividends test, in order to address ongoing stakeholder concerns about this section.

Prior to June 2010, section 254T provided that a company could only pay a dividend out of profits. From June 2010 section 254T was amended to provide that a company must not pay a dividend unless three separate conditions are met:

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