The Corporations Amendment (Corporations Reporting Reform) Act received Royal Assent on 28 June 2010 and amends provisions within the Corporations Act (Act) dealing with the payment of dividends.
The old 'Profits Test'

The new test has been introduced to enhance the flexibility in paying a dividend and reflects a shift in focus away from the old capital maintenance concept towards a more solvency based approach. The new section 254T applies to all dividends declared after 28 June 2010.

Dividends can now be paid other than out of profits which may make it easier for some companies to pay a dividend. This includes companies in start up which do not have accounting profits and those with profits that have been affected by non-cash expenses.

In comparison, a company that has a profit but with a deficiency in net assets will no longer be able to declare a dividend to its shareholders.

Companies should consider amending their constitutions to:

• remove rules which restrict payments of dividends only from profits and
• permit directors to determine the time and amount of a dividend (if the constitution does not already allow such a determination).

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