Another proposal was to abolish the restriction on parent companies' right to distribute profits in excess of the free equity on the consolidated group balance sheet, leaving the parent company's own free equity freely distributable. However, the so-called prudence rule was kept, stating that a profit distribution may not be so high as to contravene generally accepted business practices in view of the company's or group's consolidation needs, liquidity or financial position. This rule was tightened by dropping the reference to business practice and making its application to any form of transfer of values to shareholders or others clear.
On the question of whether assets may be transferred at book value although this is below market value, as long as the restricted equity of the company remains intact, the committee shares the view previously taken by the Supreme Court (see IFLRev, March 1996, page 52).
The committee further proposes that the rules presently restricting loans to shareholders and others are incorporated in the capital protection rules, abolishing the existing penalties for unlawful loans.
The new provisions are proposed to be enacted as of January 1 2000.
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