Question M

Company has been losing money since Jan 2021 on housing contracts because of higher building materials, shortage in labour and nature of contracts with customers. Even now, in order to finish 58 housing contracts, company would make $3.6 million loss in total. This is because of the fact that these contracts have fixed price contracts and do not have envisage in regards to the impact of coronavirus on labour and supplies. There are also other factors that contribute towards the loss such as rental costs, operating expenses & cost of funding construction of new head office building. There are financial statements that are done by CFO which shows that the result in company for FY2022 makes a trading loss of $11.2 million and has retained earnings of 15 million as at 1 July 2021. This means that the company has accumulated profits of 4.67 million. Further, company is facing pressure from its contractors to pay them for their services and materials. Outstanding creditors are 18million. Some of which are secured over new head office and building supplies but many of them are unsecured.

Companys shareholders fund includes:

(ordinary) Authorised share capital	12 million
A class preference shareholders	8 million
Retained earnings	4.67 million
Total shareholders funds as at 30 Jun 22	24.7 million

(Please provide a statement of advice by answering the following 3 questions for the company. Response has to be supported by relevant legislation in Corporations act, case law, ASIC act or any other appropriate legislations)

Questions:

Can company still pay dividend even though the current yr has resulted in trading loss. If they can still pay dividend, what would be the reasons?

Is there a profit at law from which directors of the company can pay dividend if they wish to do so? (In the past, directors have history of paying dividends each year about 15% of retained earnings of company at the end of yr)

Would you recommend directors to pay a dividend of 15% of retained earnings or not?