(1)Whether a distribution may be made by a company without contravening this Part is determined by reference to the following items as stated in the relevant accounts—
(a)profits, losses, assets and liabilities;
(b)provisions of the following kinds—
(i)where the relevant accounts are Companies Act accounts, provisions of a kind specified for the purposes of this subsection by regulations under section 396;
(ii)where the relevant accounts are IAS accounts, provisions of any kind;
(c)share capital and reserves (including undistributable reserves).
(2)The relevant accounts are the company's last annual accounts, except that—
(a)where the distribution would be found to contravene this Part by reference to the company's last annual accounts, it may be justified by reference to interim accounts, and
(b)where the distribution is proposed to be declared during the company's first accounting reference period, or before any accounts have been circulated in respect of that period, it may be justified by reference to initial accounts.
(3)The requirements of—
section 837 (as regards the company's last annual accounts),
section 838 (as regards interim accounts), and
section 839 (as regards initial accounts),
must be complied with, as and where applicable.
(4)If any applicable requirement of those sections is not complied with, the accounts may not be relied on for the purposes of this Part and the distribution is accordingly treated as contravening this Part.
Cases considering section 836 (17)
[2020] EWCA Civ 547 · 22 April 2020
Section 836 was identified as governing whether a distribution may be made by reference to relevant accounts. The court applied it in analysing the dividend-payment mechanics. (see para [62])
Section 836(1) requires distributions to be assessed by reference to profits, losses, assets and liabilities shown in relevant accounts. The court applied it to the interim accounts prepared for the proposed dividend. (see paras [62]-[64])
Section 836(2) permits interim accounts to justify a distribution where the last annual accounts would otherwise contravene Part 23. The court applied it to the proposed dividend. (see para [62])
[2024] EWHC 2053 (Ch) · 6 August 2024
Applies the requirement that the legality of a distribution be determined by the relevant accounts. The purported dividends could not be justified by accounts that materially misstated the company’s assets and liabilities. (see paras [40]-[41]; [117])
[2024] EWHC 832 (Ch) · 16 April 2024
Requires a distribution to be justified by relevant accounts. The court concluded that the June 2018 dividend was unlawful because the statutory accounts requirements were not met. (see paras [45]-[48]; [57.1])
Requires relevant accounts to identify profits, losses, assets and liabilities for the distribution assessment. The provision formed part of the basis for treating the dividend as unlawful. (see para [46])
Allows relevant accounts to be the last annual accounts or, where necessary, interim accounts. The court found no sufficient accounts basis for the dividend. (see para [46])
Requires relevant accounts to comply with the requirements of ss.837 and 838. The court treated the accounts requirements as part of the unlawfulness of the dividend. (see para [46])
Provides that accounts which do not comply with the applicable requirements cannot be relied upon and a distribution nevertheless made contravenes the legislation. (see para [46])
What each judgment says about section 836 is in the case-law panel in the full Act.