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Chapter 2j o a discharge on ordinary commercial terms

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Chapter 2J o A discharge on ordinary commercial terms of liability that the company incurred as a result of a transaction entered into on ordinary commercial terms D.5 Consequences of Breach Consequences for failing to comply with financial assistance provisions are contained in [s 260D Corporations Act} A company that is found to financial assist the acquisition of its shares in circumstances that materially prejudice shareholders or creditors face similar consequences as those for capital reductions are share buy backs o Transaction remains valid but an injunction for damages may be available under s 1324 o Standing to seek this order is expressly given to shareholders and creditors who experience material prejudice against their interests {s 1324(1B) Corporations Act} A contravention does not constitute an offence by the company {s 206D(1)(b) Corporations Act} BUT will be an offence by an person involved if the involvement is dishonest {s 260D(3) Corporations Act} A contravention is also a civil penalty provision and so the consequences of breaching a civil penalty provision apply {Part 9.4B Corporations Act} . A contravention may also bring into play the insolvent trading provisions E. Dividends Dividends are essentially the profits of a company distributed to the shareholders The payment of dividends is governed by the company’s constitution G.1 Types of Dividends Interim Dividends are those paid prior to the presentation of the company’s annual financial report at its annual general meeting 5
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Final Dividends are those paid after the end of the company’s financial year, following presentation of the company’s annual financial report at its annual general meeting When does the company incur the debt for paying dividends? { s 254V Corporations Act} o Debt arises only when the time fixed for the payment arrives and the decision to pay the dividend may be revoked at any time before then {s 254V(1) Corporations Act} o If the company has a constitution that provides for the declaration of dividends then the company incurs the debt when the dividend is declared G.2 Dividend rights The dividend rights are outlined in { s 254W Corporations Act} (1) Share in public companies: Each share in a class of shares in a public company has the same dividend rights unless: o (a) the company has a constitution and it provides for the shares to have different dividend rights o (b) different dividend rights are provided for by special resolution of the company (2) Shares in Proprietary companies: subjects to the terms on which the shares in a Pty Company are on issue, the directors may pay dividends as they see fit o This is under the Replaceable Rules (s 135) However these rights are subject to particular rules and discretion of the company directors Replaceable Rules : The decision to pay a dividend is normally a matter for the company to decide {s 254U Corporations Act} However a company must comply with its constitution if it contains rules that modify or displace s 254U G.3 Dividends from Profits Only Rule The biggest issue with respect to the payment of dividends is that dividends must be paid out of profits {s 254T Corporations Act} However the Corporations Act does not define ‘profit’ and the courts are reluctant to define the word
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