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

Dune Ltd paid a dividend to its shareholders when its accounts showed no distributable profits. One shareholder, Priya, knew this when she received her payment. What is the general legal position?

Priya may have to repay the dividend. A shareholder who receives a distribution knowing, or having reasonable grounds to know, that it breaches the distribution rules is liable to return it to the company. Directors may also be liable, but this does not free her.

  1. APriya may have to repay the dividend to the companyCorrect
  2. BPriya may keep it because dividends once paid cannot be recovered
  3. COnly the directors must repay, and shareholders are never liable

Explanation

An unlawful distribution can be recovered from a shareholder who knew, or had reasonable grounds to know, that it was made in breach of the rules. Priya had actual knowledge, so repayment can be required. Directors may also be liable, but that does not remove the shareholder's liability.

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