【正确答案】Dividends are the return received by shareholders in respect of their investment in a company. Subject to any restriction in the memorandum of association, every company has the implied power to apply its profits in the distribution of dividend payments to its shareholders. Although the directors recommend the level of dividend payment, it is for the company in a general meeting to declare the dividend. This is one of the items conducted at the annual general meeting. If the directors decline to recommend a dividend then it is not open to the general meeting to overrule that decision and declare a dividend. The longstanding common law rule is that dividends must not be paid out of capital (Flitcroft’s case 1882). The current rules relating to the payment of dividends were introduced by the Companies Act 1980, now the Companies Act 1985. These rules represent a considerable strengthening of the previous situation, which was notoriously lax in the way in which dividend payments could be determined. The present Act governs, and imposes restrictions on distributions made by all companies, both public and private. Section 263 defines distribution as any payment, cash or otherwise, of a company’s assets to its members, except for the categories stated in the section, which include the issue of bonus shares, the redemption of shares, authorised reductions of share capital, and the distribution of assets on winding up. Section 263 also provides the basic condition for distribution applying to all companies, which, in essence, is that they must have profits available for that purpose. This term is defined as accumulated realised profits less accumulated realised losses, with profit or loss being either revenue or capital in origin. It is important to note that the use of the term accumulated means that any previous years’ losses must be included in determining the distributable surplus, and that the requirement that profits be realised prevents payment from purely paper profit resulting from the mere revaluation of assets. Section 275 provides that all losses are to be treated as realised except where a general revaluation of all fixed (non-current) assets has taken place.

【正确答案】As has been stated, the foregoing realised profits test applies to both private and public companies, but public companies face an additional test in relation to distributions, in that s.264 requires that any distribution must not reduce the value of the company’s net assets below the aggregate of its total called up share capital plus any undistributable reserves. The effect of this rule is that public companies have to account for changes in the value of their fixed (non-current) assets, and are required to apply an essentially balance sheet approach to the determination of profits.

【正确答案】Under the rule in Flitcroft’s case any directors of a company who breached the distribution rules, and knowingly paid dividends out of capital, were held jointly and severally liable to the company to replace any such payments made. The fact that the shareholders might have approved the distribution did not validate the illegal payment (Aveling Barford Ltd v Perion Ltd (1989)). Also at common law shareholders who knowingly received, or ought to have known that they had received an unlawful dividend payment were required to repay the money received, or to indemnify the directors for payments they might have already been required to have made (Moxham v Grant (1900)). Section 277 of the Companies Act 1985 restates the common law rule, providing that shareholders, who either know or have reasonable grounds for knowing that any dividend was paid from capital, shall be liable to repay any such money received to the company.