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Australian government proposes changes to remuneration reports and dividend payments

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18 Dec 2012

The Australian Federal Government has released exposure draft legislation and explanatory material in relation to the disclosure of executive remuneration and for the payment of dividends under the Australian 'Corporations Act 2001'. The draft legislation is designed to improve corporate governance and respond to concerns about the operation of the dividends test as it is currently worded, including the interaction with accounting standards.

Remuneration report

The draft Bill contains measures designed to enhance the disclosure of executive remuneration in Australia, implementing many of the recommendations made by the Corporations and Markets Advisory Committee (CAMAC) in its 2011 inquiry into executive remuneration in Australia.

The proposed legislation would, among other things:

  • require listed disclosing companies to include in the remuneration report a general description of their remuneration governance framework
  • require listed companies who become aware in the financial year that their financial statements in any of their three previous financial years have been materially misstated, to disclose in the remuneration report, whether any overpaid remuneration has been 'clawed back', and if not, an explanation of why
  • improve disclosures contained in remuneration reports, by requiring more transparent disclosure of termination payments or 'golden handshake' payments and removing other disclosures considered unnecessary (e.g. the value of lapsed options).

Dividend changes

The proposed legislation would amend the Corporations Act test for the payment of dividends (contained in s.254T) to:

  • allow companies to either declare or pay a dividend, to address confusion about when the test should apply and reflect company practice
  • link the dividends test to company solvency, replacing the existing 'material prejudice' and 'fair and reasonable' requirements
  • allow non-reporting entities to calculate assets and liabilities with reference to financial records when applying the dividends test, rather than requiring the use of accounting standards.

The Explanatory Memorandum accompanying the proposed legislation provides a comparison of the existing and proposed requirements. The following table is based on this comparison:


Existing law Proposed law
Dividend test

The company’s assets exceed its liabilities and the excess is sufficient for the payment of the dividend.

The payment of the dividend does not materially prejudice the company’s ability to pay its creditors.

The payment of the dividend must be fair and reasonable to the company’s shareholders as a whole.

The company’s assets exceed its liabilities, and the excess is sufficient for the payment of the dividend.

The directors reasonably believe that the company will be solvent immediately after the dividend is declared or paid.


A company must not pay a dividend unless the dividends test is met immediately before declaration.

A company must not declare a dividend unless the dividends test is applied immediately before declaration.

Otherwise, a company must not pay a dividend unless the dividends test is applied, immediately before payment.

Calculation of assets and liabilities

Assets and liabilities are to be calculated in accordance with accounting standards in force at the time.

Assets and liabilities are to be calculated with reference to:

  • accounting standards where a company is required to prepare a financial report
  • otherwise, the company’s financial records.


Click for press release (link to Australian government website).

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