Unlawful distributions
Unlawful distributions

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Unlawful distributions
  • Consequences of an unlawful distribution—paying company
  • Consequences of an unlawful distribution—recipient
  • Unlawful distributions in practice

Distribution is given a wide definition for the purpose of Part 23 of the Companies Act 2006 (ss 829–853) (CA 2006), meaning every description of distribution of a company’s assets to its members, whether in cash or otherwise, except:

  1. an issue of fully or partly paid bonus shares

  2. the reduction of share capital:

    1. by extinguishing or reducing the liability of any of the members on any of the company’s shares in respect of share capital not paid up, or

    1. by repaying paid-up share capital

  1. the redemption or purchase of any of the company’s own shares out of capital (including the proceeds of any fresh issue of shares) or out of unrealised profits in accordance with CA 2006, ss 684–689 (redeemable shares), CA 2006, ss 690–708 (purchase of own shares) or CA 2006, ss 709–723 (redemption or purchase by private company out of capital), and

  2. a distribution of assets to members of the company on its winding up

Dividends are a type of distribution made by a company to its shareholders. Dividends are typically satisfied by a direct payment of cash or by a distribution of non-cash assets (also known as a distribution in kind or distribution in specie). A company may also capitalise its profits and use them to pay up (in whole or part) a new issue of shares to