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  • The decision in DSHE Holdings [2021] NSWSC 673 provides guidance on the requirements directors must satisfy before declaring a dividend.
  • The decision highlights the importance the particular circumstances of individual directors (in particular the different positions of the executive and non-executive directors) when considering the statutory standard of care.

The decision to declare a dividend is an important function of company boards. Once or twice a year, directors are called upon to decide whether, and if so, how much, to pay to shareholders in dividends. What requirements does a director need to satisfy in order to declare a dividend? The recent decision in DSHE Holdings (Receivers & Managers Appointed) (In Liquidation) v Nicholas Abboud (No 3); National Australia Bank Limited v Nicholas Abboud (No 4) [2021] NSWSC 673 (‘DSHE Holdings) provides useful guidance as to what is required of directors when voting in relation to a dividend.

Breach of duty by declaring dividend?

DSHE Holdings concerned the well-known electronics retailer, Dick Smith. Dick Smith Holdings (‘DSH’) floated at the end of 2013, but collapsed in 2016. During 2015, DSH declared two dividends: an interim dividend of $16.555 million declared on 16 February 2015 and paid on 30 April 2015 and a final dividend of $11.826 million declared on 17 August 2015 and paid on 30 September 2015. The receivers of DSH brought proceedings alleging that the directors of DSH breached their duty of care under s 180 Corporations Act 2001 (Cth) (‘the Act’) and at law by participating in the vote to declare both the interim and final dividends. It was alleged that the directors of DSH did not have a proper basis to conclude that the payment of the dividends would not contravene s 254T of the Act.

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