Insolvency guidance on company dividends and distributions

Copyright © 2025 LexisNexis
Published by a LexisNexis Restructuring & Insolvency expert
Practice notes

Insolvency guidance on company dividends and distributions

Copyright © 2025 LexisNexis

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes
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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: Distributions and Dividends—the legal framework.

What is a distribution?

Distribution is given a very wide definition for the purpose of CA 2006, Pt 23.

A distribution is every description of distribution of a company’s assets to its shareholders, 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

A distribution of non-cash assets is often known as a distribution in kind or distribution in specie.

What is a dividend?

A dividend is a type of distribution made by a company to its shareholders.

The ordinary meaning of 'dividend' is a share of profits, whether at a fixed

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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Insolvency definition
What does Insolvency mean?

This can be defined by two alternative tests (Insolvency Act 1986, s 123):

• cash flow test: a company is solvent if it can pay its debts as they fall due, no matter what the state of its balance sheet (Re Patrick & Lyon Ltd [1933] Ch 786);

• balance sheet test: a company which can pay its debts as they fall due may be insolvent if, according to its balance sheet, liabilities (including contingent liabilities) exceed assets.

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