Insolvency guidance on company dividends and distributions

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Insolvency guidance on company dividends and distributions
  • What is a distribution?
  • What is a dividend?
  • Restrictions on distributions
  • Declaration and payment of dividends
  • Interim and final dividends
  • Dividends in specie
  • Additional requirements—listed companies and AIM companies
  • Tax issues on the payment of dividends
  • Waiver of dividends
  • More...

Insolvency guidance on company dividends and distributions

Distributions made and dividends paid by a company are governed by Part 23 of the Companies Act 2006 (CA 2006). For detailed consideration of the law on distributions and dividends, see Practice Notes: Dividends—the legal framework and Distributions.

What is a distribution?

Distribution is given a very wide definition for the purpose of CA 2006, Pt 23 (CA 2006, ss 829–853).

A distribution is every description of distribution of a company’s assets to its members, whether in cash or otherwise, except:

  1. an issue of bonus shares (whether fully paid or partly paid), and

  2. certain:

    1. reductions of share capital

    2. redemptions of shares

    3. share buybacks, and

    4. distributions of assets to members on the winding up of a company

What is a dividend?

A dividend is a type of distribution made by a company to its members. Any entitlement that a member has to a dividend from a company derives from the shares they hold in that company—a right to a dividend may attach to a class of a company’s shares. A dividend is typically satisfied by a direct payment of cash or by a distribution of non-cash assets. A distribution of non-cash assets is also known as a distribution in kind or distribution in specie.

A company may also capitalise its profits or reserves and use them to pay up new shares allotted to its shareholders

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