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ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law

Brava Co paid a dividend to Marta, a shareholder, when the company had insufficient distributable profits. Marta knew the accounts showed accumulated losses and no profits had been made. Which statement best describes the company's right to recover the dividend from Marta?

The company can recover the dividend from Marta because she knew, or had reasonable grounds to know, that it was paid unlawfully. A member with such knowledge must repay the distribution. Recovery is not limited to directors and needs no special resolution.

  1. AThe company can recover it because Marta knew, or had reasonable grounds to know, the payment was unlawfulCorrect
  2. BThe company cannot recover it because dividends once declared become a debt owed to members
  3. CThe company can recover it only from the directors, never from members
  4. DThe company can recover it only if the members pass a special resolution to sue

Explanation

A member who receives a distribution knowing, or having reasonable grounds to believe, it contravenes the law must repay it. Marta knew of the losses, so recovery is possible. The option that rules out recovery from members is wrong because liability of directors does not exclude the member's liability.

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