The Question Of Dual Solvency Test

1019 WordsMar 22, 20175 Pages
shareholders invest to increase the commercial value of their shares to get higher returns while creditors invest capital into a company to get a steady rate of return and capital when it becomes due. Commonwealth Caribbean Companies address these relaxation matters by subjecting them to what Burgess called dual solvency test. The test specify that the company cannot be insolvent by the declaration or payment of dividends or where the company is unable to fully reimburse the capital contribution of shareholders. A typical test is that of Barbados s 51(1) which states that a company shall not declare or pay a dividend if there are reasonable grounds for believing that (a) the company is unable, or would, after the payment, be unable,…show more content…
Giving Financial Assistance in own share acquisition A company may not provide financial assistance to enable a person to purchase the company’s shares which the case of Chaston v SWP Group plc characterized as ‘smoothed path to the acquisition of shares.’ Excepting Belize, all Commonwealth Caribbean Companies Acts provide that, where circumstances prejudicial to the company exists, a company or any of its affiliates must not directly or indirectly give financial assistance by means of a loan, guarantee or otherwise to any shareholder, director or employee of the company or any affiliated company for any purpose. Similarly, a company or any of its affiliates must not directly or indirectly give financial assistance by means of a loan, guarantee or otherwise to any person for the purpose of or in connection with a purchase of shares issued or to be issued by the company or any company with which it is affiliated. However, in consideration of requirement of modern business practices, Commonwealth Caribbean Companies Acts, other than Belize contain provision regulating the giving of financial assistance by a company in the acquisition of its own shares. Thus while varied in approach, for example the Barbados Act grant power to a company give financial assistance to any person by means of a loan, guarantee or otherwise for the purchase of its own shares in the ordinary course
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