Plain language law

New Zealand law explained for everyone

Companies Act 1993

Shares and debentures - Distributions to shareholders

52: Board may authorise distributions

You could also call this:

“Company directors can approve sharing profits with shareholders if the company can still pay its bills”

The board of a company can allow the company to give out money or other things to its shareholders. This is called a distribution. The board can decide when to do this, how much to give, and which shareholders get it. But first, the board must be sure that the company will still be able to pay its bills after giving out the distribution.

When the board decides to make a distribution, the directors who agree to it must sign a paper. This paper says they think the company will still be able to pay its bills after the distribution. They also need to explain why they think this.

If the board changes its mind and thinks the company might not be able to pay its bills after the distribution, then the distribution isn’t allowed anymore. This can happen even if they already said it was okay.

When the board is checking if the company can pay its bills, they need to think about some special things. They must include any money the company has to pay to certain shareholders before others. But they don’t have to include the money they’re planning to give out in the distribution.

If a director doesn’t sign the paper saying the company can pay its bills after the distribution, they might get in trouble. There’s a punishment for this in section 373(1) of the law.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320170.

Topics:
Business > Industry rules
Business > Fair trading
Money and consumer rights > Banking and loans
Previous

51: Time of issue of shares, or

“Shares become official when the owner's name is added to the share register”

Next

53: Dividends, or

“Rules for companies paying money to shareholders”

Part 6 Shares and debentures
Distributions to shareholders

52Board may authorise distributions

  1. The board of a company that is satisfied on reasonable grounds that the company will, immediately after the distribution, satisfy the solvency test may, subject to section 53 and the constitution of the company, authorise a distribution by the company at a time, and of an amount, and to any shareholders it thinks fit.

  2. The directors who vote in favour of a distribution must sign a certificate stating that, in their opinion, the company will, immediately after the distribution, satisfy the solvency test and the grounds for that opinion.

  3. If, after a distribution is authorised and before it is made, the board ceases to be satisfied on reasonable grounds that the company will, immediately after the distribution is made, satisfy the solvency test, any distribution made by the company is deemed not to have been authorised.

  4. In applying the solvency test for the purposes of this section and section 56,—

  5. debts includes fixed preferential returns on shares ranking ahead of those in respect of which a distribution is made (except where that fixed preferential return is expressed in the constitution as being subject to the power of the directors to make distributions), but does not include debts arising by reason of the authorisation; and
    1. liabilities includes the amount that would be required, if the company were to be removed from the New Zealand register after the distribution, to repay all fixed preferential amounts payable by the company to shareholders, at that time, or on earlier redemption (except where such fixed preferential amounts are expressed in the constitution as being subject to the power of directors to make distributions); but, subject to paragraph (a), does not include dividends payable in the future.

      1. Every director who fails to comply with subsection (2) commits an offence and is liable on conviction to the penalty set out in section 373(1).