Unlawful dividends and illegal distributions by Directors
Unlawful dividends and illegal distributions by Directors are dividends that are declared at a point when the company does not have sufficient distributable reserves. The consequences of this for an insolvent company is that the Director will be unable to ratify the breach of duty and liable to repay the dividends back to the company.
A dividend must be declared with reference to relevant accounts. This is a mandatory requirement in the Companies Act 2006. A dividend cannot be an after thought i.e. something that is processed after the year end for accounting purposes to justify a Director’s receipt of company money. You must declare the dividend first and then you can draw it, not backdate it into the accounts after the year end to justify monies a Director has extracted during the year.