Declaring and Paying a Dividend
A recent High Court case, Manolete Partners plc v Rutter and Rutter  EWHC 2552 (Ch), has highlighted the importance of carefully documenting the decision to pay a dividend and its subsequent payment. Two new longer form board minutes, to approve and pay a dividend, have been added to the portfolio of templates
A company must have sufficient distributable profits to pay a dividend, such profits are justified by reference to a company’s most recent annual accounts. Directors must satisfy themselves that a dividend payment is lawful. For certain companies, given the size of the proposed dividend or to explain why the dividend is being made, it may be necessary to include extra detail in relation to both the legal requirements for the dividend as well as a more in-depth consideration of the company’s financial position, to demonstrate that the dividend is lawful. It will be up to the directors to decide how much detail to include.
The template portfolio already includes board minutes to approve a dividend payment, but two new longer form templates, that include a more detailed consideration of the legal and financial justification for the dividend, have been added. One is relevant for companies with model articles of association, therefore requiring the dividend to be approved first by their shareholders. The other one is for companies with modified articles of association, not requiring any recourse to shareholders.
These new board minutes will be of interest to all company directors, secretaries and administrators.
The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.