Q&As

What steps can be taken to recover a dividend where new matters come to light that impact on the distributable profits of a company?

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Published on LexisPSL on 05/06/2017

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • What steps can be taken to recover a dividend where new matters come to light that impact on the distributable profits of a company?
  • Restrictions on distributions
  • Consequence of unlawful distributions

What steps can be taken to recover a dividend where new matters come to light that impact on the distributable profits of a company?

Restrictions on distributions

A distribution will be unlawful if it does not comply with the requirements of Part 23 of the Companies Act 2006 (CA 2006) and the common law rules as modified by those provisions. A company can only make a distribution:

  1. out of profits available for the purpose (ie, its distributable reserves) (CA 2006, s 830), and

  2. in the case of a public company that is not an investment company, if the net asset test is satisfied (ie, if the company's net assets are not less than the aggregate of its called-up share capital and undistributable reserves and are not reduced to less than that amount by the distribution) (CA 2006, ss 831 and 833)

The accounts (relevant accounts) used to determine whether a company has sufficient distributable profits to pay a dividend will be its last annual accounts, except:

  1. interim accounts may be used if the proposed distribution would not comply with CA 2006, Pt 23 on the basis of the last annual accounts (ie, where they do not reflect the current financial position of the company and, in particular, the profits that the company has available for distribution)

  2. initial accounts may be used if the proposed distribution is to

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