Repaying an unlawfully paid dividend

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    Abstract

    It is well settled that directors are jointly and severally liable for an unlawfully paid dividend, being one that it is not paid out of distributable profits. Strict rules apply to the meaning of distributable profits and the authorisation of the payment of a dividend. What is not so clear is when a member may retain an unlawfully paid dividend. S.847 of the Companies Act 2006 indicates that a member must repay it if he knows that it is unlawfully paid, though it is not clear what constitutes “knowing” in this content, or what the position should be if a member does not immediately know if the payment is unlawful but subsequently discovers that it is. Case law is not especially helpful in dealing with this point. It is suggested that a solution to this gap in the law may be found in the precise wording of s.847, and that a member’s liability to repay should be limited to a period of six months after payment (similar to an unfair preference).
    Original languageEnglish
    Pages (from-to)146-149
    Number of pages4
    JournalBusiness Law Review
    Volume44
    Issue number4
    Early online date7 Jul 2023
    Publication statusPublished - 1 Aug 2023

    Keywords

    • Directors
    • Liability
    • Shareholders
    • Dividends
    • Unlawful distribution

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