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Chapter 8

Additional rules for a public company

A public limited company can only declare a dividend if, both before and
after distribution, its net assets are not less than the aggregate of its
called-up share capital and undistributable reserves (s.831 CA 2006).

Undistributable reserves are:
 The share premium account

 The capital redemption reserve

 Unrealised profits (i.e. revaluation reserve), and

 Any reserves that the company is forbidden to distribute.

The latest audited accounts are used as the basis of the calculations.

Consequences of an unlawful dividend

The company can recover the distribution from:

 Shareholders who knew or had reasonable grounds to know the dividend was
unlawful

 Any director unless he can show he exercised reasonable care in relying on
properly prepared accounts

 The auditors if the dividend was paid in reliance on their erroneous accounts.

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