You are not expected to cite case law but you must provide pinpoint references to the Companies
Question:
You are not expected to cite case law but you must provide pinpoint references to the Companies Act 1993. (350-450 words) Background Gold Sport Ltd (Gold) is a leading supplier of sports equipment. Gold wishes to pay a dividend to its shareholders, but Ana Steel, Gold’s accountant, is concerned that a pending legal action may affect Gold’s solvency. In preparing her advice for the board, Ana notes that Brent Kēna, a well-known triathlete, has recently started legal proceedings against Gold. Brent claims that, by supplying a leaky kayak, Gold was in breach of contract and caused him $200,000 in damages when it sank during a race. Ana calculates that if Brent’s full claim were paid, Gold’s liabilities would just exceed the value of its assets (Gold has recently prepared financial statements as required by statute). Ana consults Carla Osmium, Gold’s solicitor, who advises her that the case against Gold has no more than an outside chance of succeeding.
Required
(a) Outline the test which applies to the payment of a dividend.
(b) Apply the test to Gold’s situation.
(c) Comment on the board’s ability to rely on Carla’s advice.
Intermediate Accounting
ISBN: 978-0078025839
9th edition
Authors: J. David Spiceland, James Sepe , Mark Nelson , Wayne Thomas