Why am I required to repay a dividend?

Directors, and sometimes their accountants, often forget that a company must have sufficient profit and loss account reserves before it may a dividend. If it does not do so then the dividend is regarded as unauthorised. Usually this is only picked up when a company goes into liquidation. 

The liquidator will then ask the shareholder/director to repay the dividend to the company. Usually the amount to be repaid will be the difference between the reserves and the dividend actually paid. It is again, worthwhile taking a careful look at the reserves figure. For example, are there credits in the balance sheet that should have been written off, thereby increasing the reserves figure. 

Please note that the above is provided for illustration purposes only and comprises a short view of extremely complex insolvency and other legislation. This is a complicated area and specific advice must be sought before undertaking any course of action or before refraining from any course of action. Gore and Company takes no responsibility for any loss incurred to or by any person who either acts or refrains from acting on the basis of the above or of any other item published on this website. The above note may not be reproduced without the prior written consent of Gore and Company.

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