If you are a company director searching on Google how to declare an interim dividend, the answers you get would suggest that a board meeting is required. After all Part 23 of the Companies Act 2006 requires the directors to consider the relevant accounts and satisfy themselves that the company has sufficient distributable profits before declaring the dividend. If a board meeting is required, then the formalities of convening a board meeting also need to be complied with.
However, nowhere does Part 23 say that a board meeting or resolution is required. Instead, the procedure is governed by the Company’s constitution. If the company’s articles follow the Companies Act 2006 Model Articles then, whilst the company (i.e. shareholders) has power by ordinary resolution to declare dividends, the directors may also decide to pay interim dividends. The model articles do not say that the directors have to make their decision at a board meeting.
In Burnden Holdings v Fielding, the Liquidator argued that interim dividends made were not lawful because the correct procedure had not been followed. The Liquidator argued that strict compliance with the procedure was required for the dividend to be lawful, and that the procedure was:
- A board meeting had to be convened to recommend the dividend
- That the accounts being considered by the directors had to be the company’s accounts in the sense of being adopted by the company
- That the directors actively consider the relevant accounts in order to conclude there are sufficient distributable profits to enable the dividend to be declared
- That the directors then recommend the dividend
The Judge rejected the Liquidator’s arguments. No such formality is required under the Act and in particular there is no requirement for the company’s interim accounts to be “laid” before the company through a formal meeting of its directors (in contrast to annual accounts). However, the Judge stressed that it is important that the directors actively consider the accounts and satisfy themselves that there are sufficient distributable profits. This means that the accounts need to be available to all the directors before the decision to declare the dividend. Whilst it is not necessary for the directors to meet up & consider the accounts together, the lawfulness of the dividend may come under challenge ( if the company subsequently goes into liquidation) if it becomes clear that one or more of the directors cannot have seen the accounts before the decision is made, or there is no evidence that all the directors approved the interim dividend.
We are delighted with our write up in both Chambers & Partners and the Legal 500 this year: https://t.co/KVbJmzcAdd.21st Oct 2019 16:33:29
Congratulations to associate Sian Leonard who won the Rising Star award at the Insolvency Practitioners Association awards last week30th Sep 2019 10:15:18