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Dividend recapitalisation
Practical Law ANZ Glossary w-016-2651 (Approx. 2 pages)
Glossary
Dividend recapitalisation
Also known as a dividend recap. A financing technique that usually involves a private equity firm causing a portfolio company to issue new debt securities or incur new debt to pay shareholders a special dividend. A means of refinancing, a dividend recap allows the private equity firm to quickly recoup much of its equity investment without selling its ownership interest in the company. As with the payment of any dividend, a company must not undertake a dividend recap unless all the following conditions are satisfied:
- The company's assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend.
- The payment of the dividend is fair and reasonable to the company's shareholders as a whole.
- The payment of the dividend does not materially prejudice the company's ability to pay its creditors.
(Section 254T, CA 2001.)
For more information about dividends, see Practice note, Dividends.
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