Chapter 2: Formation, Administration and Dissolution of Companies
Part D: Capitalisation of profit companies

s46: Distributions must be authorised by board

  • (1) A company must not make any proposed distribution unless:
    • (a) the distribution:
      • (i) is pursuant to an existing legal obligation of the company, or a court order; or
        • (ii) the board of the company, by resolution, has authorised the distribution;
        • (b) it reasonably appears that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution; and
          • (c) the board of the company, by resolution, has acknowledged that it has applied the solvency and liquidity test, as set out in section 4, and reasonably concluded that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution.
          • (2) When the board of a company has adopted a resolution contemplated in subsection (1)(c), the relevant distribution must be fully carried out, subject only to subsection (3).
            • (3) If the distribution contemplated in a particular board resolution, court order or existing legal obligation has not been completed within 120 business days after the board made the acknowledgement required by subsection (1)(c), or after a fresh acknowledgement being made in terms of this subsection, as the case may be:
              • (a) the board must reconsider the solvency and liquidity test with respect to the remaining distribution to be made pursuant to the original resolution, order or obligation; and
                • (b) despite any law, order or agreement to the contrary, the company must not proceed with or continue with any such distribution unless the board adopts a further resolution as contemplated in subsection (1)(c).
                • (4) If a distribution takes the form of the incurrence of a debt or other obligation by the company, as contemplated in paragraph (b) of the definition of 'distribution' set out in section 1, the requirements of this section:
                  • (a) apply at the time that the board resolves that the company may incur that debt or obligation; and
                    • (b) do not apply to any subsequent action of the company in satisfaction of that debt or obligation, except to the extent that the resolution, or the terms and conditions of the debt or obligation, provide otherwise.
                    • (5) If, after considering the solvency and liquidity test as required by this section, it appears to the company that the section prohibits its immediate compliance with a court order contemplated in subsection (1)(a)(i):
                      • (a) the company may apply to a court for an order varying the original order; and
                        • (b) the court may make an order that:
                          • (i) is just and equitable, having regard to the financial circumstances of the company; and
                            • (ii) ensures that the person to whom the company is required to make a payment in terms of the original order is paid at the earliest possible date compatible with the company satisfying its other financial obligations as they fall due and payable.
                          • (6) A director of a company is liable to the extent set out in section 77(3)(e)(vi) if the director:
                            • (a) was present at the meeting when the board approved a distribution as contemplated in this section, or participated in the making of such a decision in terms of section 74; and
                              • (b) failed to vote against the distribution, despite knowing that the distribution was contrary to this section.

                              Related Sections

                              s4: Solvency and liquidity test
                              s74: Directors acting other than at meeting
                              s77: Liability of directors and prescribed officers

                              Related Regulations

                              No related regulations.

                              Related Notes

                              No related note.

                              Related Forms

                              No related forms.