Occasionally we face an interesting dilemma arising from the payment of interim dividends in an estate.
Multiple dividends are not uncommon in Deeds of Company Arrangements (DCAs) and Personal Insolvency Agreements (PIAs), or in larger liquidations and bankruptcies where a series of assets will be realized over a period of time. And occasionally a practitioner will hold funds that are not required for the further conduct of the file.
Sections 140 of the Bankruptcy Act and 478 of the Corporations Act state that trustees and liquidators should pay dividends as quickly as convenient and practical. The Corporations Act uses the Bankruptcy Act provisions for the payment of dividends by reason of section 553E.
BANKRUPTCY ACT 1966
Section 140 Declaration and distribution of dividends
(1) The trustee of the estate of a bankrupt shall, subject to this section, with all convenient speed, declare and distribute dividends amongst the creditors who have proved their debts.
The dilemma arises partially because of sub-section 9 that says:
(9) Where, but for this subsection, the amount due to a creditor in respect of a dividend would be less than $10 or, if a greater amount is, as at the beginning of the day on which the dividend is declared, prescribed by the regulations for the purposes of this subsection, that greater amount, the trustee need not pay that dividend to the creditor.
The important words here are “need not pay that dividend”. Whether to pay a dividend under the statutory amount to a creditor is at the discretion of the practitioner. The amount set by Regulation 6.21 currently is $25.
So where is the dilemma? This arises from the question of how often to pay interim dividends. Paying dividends more often reduces the dollar amount of each dividend, and increases the chances that small creditors will fall under the $25 threshold. But it releases money to the creditors earlier. Paying larger dividends less frequently means that the money sits in the practitioner’s bank account unnecessarily, but may reduce the amount of creditors under the threshold.
The threshold was put in place as it was uncommercial to pay a very small dividend. The costs of processing the cheque could cost more than the payment to the creditor. These days technology comes to the rescue. The cost of processing an extra dividend cheque of what ever size through our system is negligible. Dividends of less than the $25 threshold can be paid quickly, easily and cheaply.
Hopefully this is a dilemma that will be faced less in the future.