Legal Updates

Dividend distribution will also be approved in a cooperative association in certain circumstances when the profit test is not met

September 17, 2021

A cooperative association sought to distribute dividends although it does not meet the profit test.

The Court approved the distribution of dividend. A cooperative society is subject to the dividend distribution tests of a company. A company that seeks to distribute dividends must meet two preconditions: one, that the distribution be made from its profits (the profit test) and the other, that it be able to meet its existing and expected liabilities (the solvency test). This ensures that the dividend distribution will not be made "at the expense" of the company creditors. Here, in light of the opinion of the accountant of cooperative society that there is no reasonable apprehension that the dividend distribution will prevent the sociey from being able to meet its existing and expected liabilities, the distribution of the dividend should be approved.