Companies Act 2006, section 847

Consequences of unlawful distribution

Part 23 Distributions

(1)This section applies where a distribution, or part of one, made by a company to one of its members is made in contravention of this Part.

(2)If at the time of the distribution the member knows or has reasonable grounds for believing that it is so made, he is liable—

(a)to repay it (or that part of it, as the case may be) to the company, or

(b)in the case of a distribution made otherwise than in cash, to pay the company a sum equal to the value of the distribution (or part) at that time.

(3)This is without prejudice to any obligation imposed apart from this section on a member of a company to repay a distribution unlawfully made to him.

(4)This section does not apply in relation to—

(a)financial assistance given by a company in contravention of section 678 or 679, or

(b)any payment made by a company in respect of the redemption or purchase by the company of shares in itself.

Read section 847 in the full Act → Definitions (5) Cases (10)

Definitions used in section 847

distribution

(1) In this Part “distribution” means every description of distribution of a company's assets to its members, whether in cash or otherwise, subject to the following exceptions.

Defined in s.829(1) · see it in the full Act
company

“company” means a company formed and registered under this Act, that is—

(a)

a company so formed and registered after the commencement of this Part, or

(b)

a company that immediately before the commencement of this Part—

(i)

was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or

(ii)

was an existing company for the purposes of that Act or that Order,

(which is to be treated on commencement as if formed and registered under this Act).

Defined in s.1(1) · see it in the full Act

(4) In this section and that Schedule “company” includes any body corporate.

Defined in s.1159(4) · see it in the full Act
member

(2) In sub-paragraph (1) “member” has the same meaning as it has by virtue of section 7(1) of that Act .

Defined in Sch.2 Pt.1 · see it in the full Act
cash

For this purpose “cash” includes foreign currency.

Defined in s.1163(1) · see it in the full Act
share

(1) In the Companies Acts “share”, in relation to a company, means share in the company's share capital.

Defined in s.540(1) · see it in the full Act

Cases considering section 847 (10)

Manolete Partners PLC v Mohammed Jawed Karim & Ors

[2024] EWHC 2053 (Ch) · 6 August 2024

Applies recipient-shareholder liability. The directors were liable to repay the unlawful distributions because they knew, or had reasonable grounds for believing, the facts giving rise to the contravention. (see paras [43]; [119]-[120]; [192])

Kieran Michael Bourne & Anor v Manuk Manukyan & Anor

[2024] EWHC 832 (Ch) · 16 April 2024

Provides for repayment by a shareholder who knows or has reasonable grounds for believing that a distribution contravenes the statutory requirements. The admitted liability to repay the dividend was upheld. (see paras [47]; [53]-[58])

SSF Realisations Ltd v Loch Fyne Oysters Ltd & Ors

[2020] EWHC 3521 (Ch) · 21 December 2020

The court applied the repayment remedy against the shareholder because it knew, or had reasonable grounds for believing, that the distribution contravened Part 23. Liability was limited to the unlawful part of the distribution. (see paras [97]-[103], [114]-[126]) The court confirmed that the statutory remedy was without prejudice to relief available at common law, but no different measure of relief was advanced or applied. (see paras [101]-[103])

What each judgment says about section 847 is in the case-law panel in the full Act.

Amendments and notes

1 notes from legislation.gov.uk

Commencement

  1. I306S. 847 wholly in force at 6.4.2008; s. 847 not in force at Royal Assent see s. 1300; s. 847 in force at 6.4.2008 by S.I. 2007/3495, art. 3(1)(k) (with savings in arts. 7, 12 and subject to transitional adaptations in Sch. 1 paras. 14-20 and with savings in Sch. 4 paras. 33-35) this amendment is subject to savings and/or transitional provisions, see the commentary.