Aspects of dividends: the relevant Accounts
23rd September 2016
Contributor: Linden Ife
Linden Ife discusses the legal framework surrounding the drawing of dividends is of interest to bank directors as well as to holders of hybrid debt (such as contingent convertible bonds) which can convert into equity on the occurrence of a pre-specified trigger event.
- Shareholders cannot simply approve a dividend, or ratify a director’s breach of duty, and thereby absolve the director from liability.
- It is likely that the wording in s 270(3) Companies Act 1985 means that a distribution can only be made if compliant accounts for the immediately preceding accounting reference period have been laid.
- A distribution is only illegal to the extent it is in excess of available profits.
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