A salutary lesson for companies proposing to pay dividends. On 18 January 2016 Next convened an extraordinary meeting of shareholders to rectify 'a procedural oversight in respect of [its] processes for the payment of certain dividends [in 2014 and 2015]… which have resulted in a technical infringement of the Companies Act 2006'. Next did not file interim accounts with Companies House before paying the dividends, which was a breach of the Companies Act.
All companies must be able to justify any dividend by reference to a set of accounts showing sufficient distributable reserves and otherwise complying with the Companies Act. If its last annual accounts do not achieve this, it must produce interim accounts complying with the Companies Act and if it is a public company it must file these accounts before paying the dividend.
Shareholders who receive a dividend in breach of the Companies Act are liable to repay it if they knew it was unlawful or had reasonable grounds to believe this to be the case.
How this might be remedied
Next posted a circular to shareholders yesterday and have proposed the following resolutions to remedy the breach:
- To authorise the appropriation of distributable reserves for the dividend payments
- To waive any claims Next has or may have against shareholders
- To waive any claims Next has or may have against directors and former directors.
In its circular Next reported that it had informed HMRC, who had confirmed that UK shareholders' tax position is not affected by any procedural irregularity in the dividends.
The approach taken by Next is consistent with that of other UK listed companies in similar circumstances.