The statutory rules governing when a company may lawfully return value to its shareholders, and what follows when it pays out money the law says must stay in.
Creditors deal with a company on the strength of its capital, so the law polices every payment that flows out to members. This chapter starts with the capital maintenance doctrine, the statutory definition of a distribution and the calculation of distributable profits from realised gains and losses, before adding the stricter net assets test that public companies must also satisfy. It then works through the mechanics: the annual, initial or interim accounts that must justify a distribution, the contrast between final and interim dividends and who authorises each, and the variations — distributions in specie, bonus issues, and the ranking of cumulative and non-cumulative preference dividends. It closes with the fallout from an unlawful distribution, from members' liability to repay through directors' personal liability, and the routes to escape it via ratification or relief under section 1157.
