Question to the Department for Business, Energy and Industrial Strategy:

To ask Her Majesty's Government, further to the Written Answer by Lord Callanan on 27 October 2020 (HL9157), whether they will provide (1) the names of the “Several bodies” who have “powers in certain circumstances to investigate and take action if illegal dividends have been paid”; and (2) the number of cases examined by each such body.

Compliance is primarily a matter for the directors, and there are rights of recourse to the courts in response to unlawful distributions. Where a company becomes insolvent after paying dividends the courts have wide powers to apply a variety of sanctions and remedies. Data on illegal dividends is not collected.

A number of bodies, however, have an interest in dividend payments from their particular regulatory perspectives. They include the Insolvency Service and insolvency practitioners who will investigate dividend payments and seek to recover them if they are found to be illegal. HM Revenue and Customs has an interest in the proper payment of dividends to the extent that there may be tax consequences leading to a loss to the Exchequer. The Prudential Regulation Authority has rules and powers under financial services legislation regarding dividends and other distributions for the purpose of banks and building societies’ capital conservation. Data on this aspect of the regulators’ work is not collected.

Proposals in the Government’s recently published consultation document on Restoring Trust in Audit and Corporate Governance would improve dividend transparency and provide stronger reassurance that dividends are being paid in line with the requirements of the Companies Act 2006. These include proposals to require companies to disclose their known distributable reserves in their financial statements, and to require directors to confirm that dividends are within known distributable reserves and that it is their reasonable expectation that payment of the dividend will not threaten the solvency of the company over the next two years.