i. Preference shares may be used as an instrument to provide investors with priority to receive dividend payments over ordinary shareholders. Such investors are called preference shareholders.
ii. Dividends out of profit available of a company may only be distributed if the company is solvent.
iii. The distribution of dividends shall only take place with the prior authorisation by the directors of the company. Such authorisation may be given where the directors are satisfied that, upon the distribution of dividend, the company shall remain solvent. A company is considered solvent if the company is able to pay its debts as they fall due within 12 months after the making of such distribution.
iv. Where directors have authorised a distribution but are then satisfied on reasonable grounds that the company will not remain solvent after a distribution, the directors must take all necessary steps to prevent such distribution from taking place.
v. Pertinently, every director who wilfully pays or authorises the payment of an improper distribution shall, on conviction, be liable to imprisonment for a term not exceeding 5 years or a fine not exceeding 3 million ringgit or to both.
vi. Where the shareholder has received in good faith any amount of distribution paid in excess of what was supposed to be paid and has no knowledge that the company did not satisfy the solvency test, the company may not be able to recover from that shareholder such excess distribution.
vii. Any director of a company who intentionally authorizes or allows the payment of a dividend, knowing that it is not based on profits, will be personally liable to the company. This liability will extend to the amount that exceeds the value of any dividends that could have been appropriately distributed.