ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law
Marlow Ltd's directors discover after paying a dividend that the interim accounts used were misleading and the company lacked distributable profits. Which statement best describes the directors' position?
The directors may be personally liable to restore the unlawful distribution to the company. Authorising a dividend without sufficient distributable profits breaches their duties, and the liability is owed to the company rather than to shareholders, whose receipt of the payment does not shield the directors.
- AThey may be personally liable to restore the unlawful distribution to the companyCorrect
- BThey are protected because shareholders received the dividend
- CThey are liable only to the shareholders who were paid
- DThey have no liability because dividends are decided by shareholders
Explanation
Directors who authorise a distribution in breach of the rules breach their duties and may be required to make good the amount to the company. The liability is owed to the company, not to shareholders, and shareholder receipt gives no protection. Directors recommend dividends, so they cannot shift the responsibility.
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