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What are the rules on paying a dividend when you have large outstanding liabilities?

Suppose, a will be unable to pay off its bondholders if it pays a huge dividend. Can it still payout the dividend, anyway?

You can pay dividends when your retained earnings is not in deficit and when you have the cash to pay them. If because by paying huge dividends you cannot pay your creditors, the company will eventually fall into bankruptcy. No directors in their right mind will declare payment of dividends when the company does not have the cash flow for that.

This entry was posted on Tuesday, June 15th, 2010 at 7:32 am and is filed under dividend. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “What are the rules on paying a dividend when you have large outstanding liabilities?”

  1. Sandy says:
    June 15, 2010 at 12:48 pm

    You can pay dividends when your retained earnings is not in deficit and when you have the cash to pay them. If because by paying huge dividends you cannot pay your creditors, the company will eventually fall into bankruptcy. No directors in their right mind will declare payment of dividends when the company does not have the cash flow for that.
    References :
    http://www.finpipe.com/divexpl.htm

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