ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law
Brindle Ltd paid a dividend that exceeded its distributable profits. Maria, a shareholder, knew the accounts showed insufficient profits when she received her dividend. What is the legal position regarding Maria?
Maria must repay the dividend. A shareholder who receives a distribution knowing, or having reasonable grounds to believe, that it was paid in breach of the distribution rules is liable to return it to the company. Having spent it is no defence, and directors' liability is additional.
- AShe must repay the dividend because she knew, or had reasonable grounds to believe, it was unlawfulCorrect
- BShe keeps the dividend because only directors are liable for unlawful dividends
- CShe keeps the dividend if she has already spent it
Explanation
A member who receives a dividend knowing, or having reasonable grounds to know, that it contravenes the distribution rules is liable to repay it to the company. Spending the money is not a defence. Directors' liability is separate and does not remove the member's liability.
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