While the board of directors of a corporation governed by the
Business Corporations Act (Ontario) (the
"OBCA") has the power to declare
dividends, its authority to declare and pay cash dividends is
subject to compliance with two statutory solvency tests.
Solvency Tests
Cash dividends are subject to two statutory solvency tests set
out in Section 38(3) of the OBCA, each of which must be met at both
the time of declaration of a dividend as well as at the time of its
payment. Section 38(3) of the OBCA reads as follows:
"38(3) When dividend not to be declared
— The directors shall not declare and the corporation shall
not pay a dividend if there are reasonable grounds for believing
that,
