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

Tavi Ltd's articles allow the directors to pay interim dividends. The directors paid one when the company had no distributable profits, relying on a belief that next quarter would be profitable. A shareholder, Ines, received it in good faith with no reason to doubt its legality. What is the most likely position on recovery from Ines?

Ines need not repay because a member is liable only where she knew, or had reasonable grounds to believe, that the dividend was unlawful. She acted in good faith. The directors who authorised the payment remain potentially liable to the company.

  1. AShe must repay because every unlawful dividend must be returned by every recipient
  2. BShe need not repay, because liability of a member requires knowledge or reasonable grounds for knowledge of the breachCorrect
  3. CShe must repay only half, because the loss is shared with the directors
  4. DShe need not repay, because interim dividends can never be recovered

Explanation

Members are liable to repay only if they knew or had reasonable grounds to believe the distribution was unlawful. Ines acted in good faith, so recovery from her is unlikely, though the directors remain exposed. Interim dividends are recoverable in principle if the knowledge test is met.

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