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There's a lot of misinformation about this out there. The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back

There's a lot of misinformation about this out there. The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid. This is so that aid is not redirected into the pockets of shareholders and is instead used to keep people employed. >The Government and all parties to the Parliament agree that the extended and extended fixed cost scheme introduces a condition in the Compensation Orders that applicants, as a condition of receiving compensation for the extended period, must declare by faith and laws, that the companies will not pay dividends or buy back shares for the financial years 2020 and 2021. The condition will apply to companies that receive more than DKK 60 million. in compensation in 2020 in the compensation scheme for fixed costs. Companies will later be able to free themselves from these restrictions by repaying paid aid under this scheme in excess of DKK 60 million. Translated from: https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regeringen-og-alle-folketingets-partier-er-enige-om-at-justere-og-udvide-hjaelpepakker-til-dansk-oekonomi https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regering... DKK 60 million is about 8.8 million dollars. If you have money to pay dividends, you have money to pay back your government aid.

londons_explore 6y ago
So why don't these conditions apply to all the aid, not just the aid after 8.8 million dollars? Otherwise it seems ripe for my company to claim 7 million dollars of aid as unsecured loans, then pay out nice big dividends claiming you are in a strong financial position because you are forecasting lots of business next year, then in 2 years time when the loan repayments become due, go bankrupt.
- freeone3000 6y ago
  Because most companies want to exist longer than two years.
  - nerdponx 6y ago
    Bankruptcy does not mean the company dissolves.
- akiselev 6y ago
  I don't know if Denmark has similar laws but here in the US there are a lot of family businesses that have many family members who aren't officially on payroll. They're not doing anything shady because there are lots of exceptions to underage labor and minimum wage laws for family businesses. The businesses pay the owners (one member from each household usually) dividends who then distribute to the rest of the family. Many of these businesses are run by large families with strong ties with each other and their communities who act as their own social safety net. Many of them are also immigrants with a disaster mentality so they are the ones most likely to have a large nest egg for hard times. Excluding them from the loans because of their capital structure would be disastrous. I think the $8.8 million is too high out of an abundance of caution but I can see the reasoning.
jdmichal 6y ago
TARP in the US worked exactly the same way with the banks, BTW. Banks which took TARP money had their dividends reduced to a penny per share maximum until the money was repaid. Here you can see that for Bank of America, it took until 2014(!) for their dividend to go above that: https://www.nasdaq.com/market-activity/stocks/bac/dividend-history https://www.nasdaq.com/market-activity/stocks/bac/dividend-h...

londons_explore 6y ago

So why don't these conditions apply to all the aid, not just the aid after 8.8 million dollars? Otherwise it seems ripe for my company to claim 7 million dollars of aid as unsecured loans, then pay out nice big dividends claiming you are in a strong financial position because you are forecasting lots of business next year, then in 2 years time when the loan repayments become due, go bankrupt.

freeone3000 6y ago
Because most companies want to exist longer than two years.
- nerdponx 6y ago
  Bankruptcy does not mean the company dissolves.
akiselev 6y ago
I don't know if Denmark has similar laws but here in the US there are a lot of family businesses that have many family members who aren't officially on payroll. They're not doing anything shady because there are lots of exceptions to underage labor and minimum wage laws for family businesses. The businesses pay the owners (one member from each household usually) dividends who then distribute to the rest of the family. Many of these businesses are run by large families with strong ties with each other and their communities who act as their own social safety net. Many of them are also immigrants with a disaster mentality so they are the ones most likely to have a large nest egg for hard times. Excluding them from the loans because of their capital structure would be disastrous. I think the $8.8 million is too high out of an abundance of caution but I can see the reasoning.

jdmichal 6y ago

TARP in the US worked exactly the same way with the banks, BTW. Banks which took TARP money had their dividends reduced to a penny per share maximum until the money was repaid. Here you can see that for Bank of America, it took until 2014(!) for their dividend to go above that: https://www.nasdaq.com/market-activity/stocks/bac/dividend-history https://www.nasdaq.com/market-activity/stocks/bac/dividend-h...