Child Care Ltd was a profitable company in the financial years 2015 and 2016. In both years the company decided to pay no dividends. The company faced a voluntary administration in 2016 and its new directors have indicated to its two large institutional shareholders that it will not pay a dividend for the next three years (2016 – 2018) despite the fact that there does appear to be sufficient funds in the company’s bank accounts to fund a modest dividend for the 2016 year. Despite this, following the restructure that took place after the voluntary administration the new directors have agreed to increase their salaries by 50% per annum and have all leased 2016 Mercedes motor vehicles. The directors justify the pay increases and new cars by stating that they will be working longer hours than the old directors and need reliable safe motor vehicles to allow them to travel between the various centres that the company is operating. The large institutional shareholders wish to call a special meeting to discuss dividend policy with the directors. These shareholders do not believe that the company needs to adopt such a conservative dividend policy and have threatened to sell their shares unless a dividend is paid. Along with this threat, they have made a threat to take action against the directors for breaching their duties, alleging that the pay rises and the new cars amount to a diversion of corporate funds. Please advise the directors on the corporate obligations and options.

AccountingQueen

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Status NEW Posted 16 Sep 2017 08:09 AM My Price 5.00

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