1. It is permissible to use preference shares as an instrument to give investors (i.e. preference shareholders) priority to receive payment of dividend over ordinary shareholders. This preferential right must be stated in the constitution of the company.

2. A company may only distribute dividend to the shareholders out of profits of the company available if the company is solvent.

3. 𝗕𝗲𝗳𝗼𝗿𝗲 dividend is distributed to any shareholder, the distribution must be authorised by the directors of the company.

4. The directors may authorise a distribution at such time and in such amount as the directors consider appropriate, if the directors are satisfied that the company will be solvent immediately after the distribution is made. The company is regarded as solvent if the company is able to pay its debts as and when the debts become due within 12 months immediately after the distribution is made.

5. If, after a distribution is authorised and before it is made, the directors cease to be satisfied on reasonable grounds that the company will be solvent immediately after the distribution is made, the directors must take all necessary steps to prevent the distribution.

6. Every director of the company who wilfully pays or authorises the payment of any improper or unlawful distribution shall, on conviction, be liable to imprisonment for a term not exceeding 5 years or a fine not exceeding 3 million ringgit or to both.

7. The company may recover from a shareholder any amount of distribution paid to the shareholder which exceeds the value of any distribution that could properly have been made, unless the shareholder (a) has received the distribution in good faith; and (b) has no knowledge that the company did not satisfy the solvency test.

8. Every director of a company who wilfully pays or permits to be paid any dividend, which he knows from his knowledge is not profits shall also be 𝐩𝐞𝐫𝐬𝐨𝐧𝐚𝐥𝐥𝐲 𝐥𝐢𝐚𝐛𝐥𝐞 to the company to the extent of the amount exceeded the value of any distribution of dividends that could properly have been made.

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This post was first posted on Linkedin on 16 August 2022.