ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law
Eskal Ltd paid a dividend that was later found to breach the distribution rules. Which statement about the effect of the members' approval of the dividend at a general meeting is correct?
Members' approval does not make an unlawful dividend lawful. The rules exist to protect creditors by maintaining capital, so shareholders cannot waive or ratify a breach, and the company may still recover the payment from liable members and hold the directors responsible.
- AMembers' approval ratifies the breach and prevents any recovery
- BMembers' approval does not make an unlawful dividend lawful, so recovery remains possibleCorrect
- CMembers' approval makes only the directors, not the company, able to recover the sum
Explanation
The distribution rules protect creditors through capital maintenance, so members cannot waive them by resolution. An unlawful dividend stays unlawful despite approval, and the company can recover from liable recipients and directors. Ratification cannot validate a breach of these rules.
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