Question 4 (20 marks)

(a) 10 marks: Companies/Finance/ Insolvency

Titanic Limited is non-listed public company manufacturing ship components.

The Company has issued one million ordinary shares.

The Company in its last statement of financial position as at 31^st December 2014 had assets of over $24 million with non-current assets valued at over $10 million. The non-current assets were primarily made up of real property and plant at Port Botany valued at $4 million.

The Company has current liabilities of $4 million dollars and non-current liabilities of $10 million dollars and shareholder equity of $10 million dollars.

Titanic Limited has had some difficult recent trading results over the last three financial years:

2009 $1 million profit

2010 $1 million profit

2011 $2 million loss

2012 $1.5 million loss

2013 $1 million loss

To 31/12/2014 $1 million dollar loss

The Company has not paid a dividend for the last five financial years.

The Company has substantial cash reserves of $5 million as current assets.

The Board of Directors resolved on 31^st December 2014 to declare a dividend of $2 per share.

Examine whether or not the Board can legally pay such a dividend? (2 marks)

Explain the 1)capital maintenance rule and 2)the grounds upon which a company can pay a dividend? (5 marks)

Advise the Board 1) their duties as directors and 2)if they can subsequently revoke such a dividend ( 3 marks)

You must include relevant sections of the Corporations Act 2010 in your answer.