The company repurchased shares at a value exceeding the current average shares price, and this resulted in a debit Treasury Shares amount in Equity. Some of those shares were issued subsequently and the transaction reduced the sum of Treasury Shares less Paid-in Capital from Treasury Shares. There is still a large debit Treasury Shares in Equity, reducing it's equity when it is set off against retained income.

What happens to this debit balance in Equity and how is it utilised in future / taken out of equity to make the balance sheet look favourable again?

On that point, any dividends planned, are limited to Retained Income, and will not be affected by the debit amount Treasury Shares in the Balance Sheet, other than affecting the company's ratios?