Tom and Jane are the founders and only shareholders and directors of Shinestone Corp, which carries on a business selling semi-precious stones.They want to declare and pay a dividend to themselves.They think that the corporation will be able to pay its debts after payment of the dividend and have received advice from their accountants that the market value of the assets of the corporation exceeds the total amount owed to creditors and the amount they paid into the corporation for shares.One of its creditors, Nova Bank, hears about their plan to pay a dividend and says that, in its view, the market value of the corporation's assets is not high enough to meet this test after the dividend is paid.Tom and Jane can still declare the dividend.

Question

Quizplus · Accepted Answer

As long as Tom and Jane have received professional advice that the corporation can pay its debts after payment of the dividend and the market value of the assets of the corporation exceeds the total amount owed to creditors and the amount they paid into the corporation for shares, they can still declare the dividend. The opinion of a single creditor, like Nova Bank, does not necessarily invalidate this decision. However, they should also consider their fiduciary duties as directors to act in the best interest of the corporation and all its shareholders.

Tom and Jane Are the Founders and Only Shareholders and Directors