Part 23— Distributions

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.

The following are not distributions for the purposes of this Part—

A company may only make a distribution out of profits available for the purpose.

A company's profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.

Subsection (2) has effect subject to sections 832 , 833A and 835 (investment companies and Solvency 2 insurance companies).

A public company may only make a distribution—

For this purpose a company's “net assets” means the aggregate of the company's assets less the aggregate of its liabilities.

“Liabilities” here includes—

A company's undistributable reserves are—

A public company must not include any uncalled share capital as an asset in any accounts relevant for purposes of this section.

Subsection (1) has effect subject to sections 832 and 835 (investment companies etc: distributions out of accumulated revenue profits).

An investment company may make a distribution out of its accumulated, realised revenue profits if the following conditions are met.

It may make such a distribution only if, and to the extent that, its accumulated, realised revenue profits, so far as not previously utilised by a distribution or capitalisation, exceed its accumulated revenue losses (whether realised or unrealised), so far as not previously written off in a reduction or reorganisation of capital duly made.

It may make such a distribution only—

For this purpose a company's liabilities to creditors include—

The following conditions must also be met—

For the purposes of this section—

The company must not include any uncalled share capital as an asset in any accounts relevant for purposes of this section.

In this Part an “investment company” means a public company that—

The requirement is—

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notice to the registrar under this section may be revoked at any time by the company on giving notice to the registrar that it no longer wishes to be an investment company within the meaning of this section.

On giving such a notice, the company ceases to be such a company.

This section applies in relation to any authorised insurance company carrying on long-term business that is authorised in accordance with Article 14 of the Solvency 2 Directive.

For the purposes of section 830(2), the realised profit or loss of the company for the period in respect of which its relevant accounts (within the meaning of section 836) are prepared is taken to be the amount given by the formula in subsection (4) (with a positive figure taken to be a realised profit and a negative figure taken to be a realised loss).

But the company’s profits available for distribution are limited to an amount that does not exceed its accumulated profits (whether realised or not), so far as not previously utilised by distribution or capitalisation, less its accumulated losses (whether realised or not), so far as not previously written off in a reduction or reorganisation of capital duly made.

The formula isA−L−D, where— “A” is the total value of the company’s assets; “L” is the total value of the company’s liabilities; and “D” is the total value of the items within subsection (5) relating to the company; and, in each case, the value is to be determined as at the date of the company’s balance sheet that forms part of the accounts mentioned in subsection (2).

The items within this subsection are—

So far as anything falls within more than one of the above paragraphs of subsection (5), its value is to be taken into account only once.

The company’s assets and liabilities must be valued in accordance with—

If the company carries on both long-term business and other insurance business—

In this section— “best estimate”, “paid-in ordinary share capital”, “paid-in preference shares”, “relevant risk-free interest rate term structure” and “ring-fenced fund” have the same meaning as in rules made by the Prudential Regulation Authority under Part 9A of the Financial Services and Markets Act 2000, as they have effect from time to time; “defined benefit pension scheme” means a pension scheme (as defined by section 1(5) of the Pension Schemes Act 1993) which is a defined benefits scheme within the meaning given by section 2 of the Pension Schemes Act 2015; “long-term business” means business that consists of effecting or carrying out contracts of long-term insurance (and this definition must be read with section 22 of the Financial Services and Markets Act 2000, any relevant order under that section and Schedule 2 to that Act); “qualifying investment subsidiary” means an undertaking in which the company holds a participation within the meaning given by Article 13(20) of the Solvency 2 Directive and which is not held by the company as part of its portfolio of investments; “Solvency 2 Directive” means Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).

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—

The relevant accounts are the company's last annual accounts, except that—

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.

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.

The company's last annual accounts means the company's individual accounts—

The accounts must have been properly prepared in accordance with this Act, or have been so prepared subject only to matters that are not material for determining (by reference to the items mentioned in section 836(1)) whether the distribution would contravene this Part.

Unless the company is exempt from audit and the directors take advantage of that exemption, the auditor must have made his report on the accounts.

If that report was qualified—

An auditor's statement is sufficient for the purposes of a distribution if it relates to distributions of a description that includes the distribution in question, even if at the time of the statement it had not been proposed.

Interim accounts must be accounts that enable a reasonable judgment to be made as to the amounts of the items mentioned in section 836(1).

Where interim accounts are prepared for a proposed distribution by a public company, the following requirements apply.

The accounts must have been properly prepared, or have been so prepared subject to matters that are not material for determining (by reference to the items mentioned in section 836(1)) whether the distribution would contravene this Part.

“Properly prepared” means prepared in accordance with sections 395 to 397 (requirements for company individual accounts), applying those requirements with such modifications as are necessary because the accounts are prepared otherwise than in respect of an accounting reference period.

The balance sheet comprised in the accounts must have been signed in accordance with section 414.

A copy of the accounts must have been delivered to the registrar. Any requirement of Part 35 of this Act as to the delivery of a certified translation into English of any document forming part of the accounts must also have been met.

Initial accounts must be accounts that enable a reasonable judgment to be made as to the amounts of the items mentioned in section 836(1).

Where initial accounts are prepared for a proposed distribution by a public company, the following requirements apply.

The accounts must have been properly prepared, or have been so prepared subject to matters that are not material for determining (by reference to the items mentioned in section 836(1)) whether the distribution would contravene this Part.

“Properly prepared” means prepared in accordance with sections 395 to 397 (requirements for company individual accounts), applying those requirements with such modifications as are necessary because the accounts are prepared otherwise than in respect of an accounting reference period.

The company's auditor must have made a report stating whether, in his opinion, the accounts have been properly prepared.

If that report was qualified—

A copy of the accounts, of the auditor's report and of any auditor's statement must have been delivered to the registrar. Any requirement of Part 35 of this Act as to the delivery of a certified translation into English of any of those documents must also have been met.

In determining whether a proposed distribution may be made by a company in a case where—

The financial assistance and other payments that are relevant for this purpose are—

In this section “financial assistance” has the same meaning as in Chapter 2 of Part 18 (see section 677).

For the purpose of applying subsection (2)(b) in relation to any financial assistance—

For this purpose a company's liabilities include any amount retained as reasonably necessary for the purposes of providing for any liability—

The following provisions have effect for the purposes of this Part.

The following are treated as realised losses—

A “revaluation provision” means a provision in respect of a diminution in value of a fixed asset appearing on a revaluation of all the fixed assets of the company, or of all of its fixed assets other than goodwill.

For the purpose of subsections (2) and (3) any consideration by the directors of the value at a particular time of a fixed asset is treated as a revaluation provided—

Where—

there is no record of the original cost of the asset, or

a record cannot be obtained without unreasonable expense or delay,

The provisions of this section have effect for the purposes of this Part as it applies in relation to an authorised insurance company carrying on long-term business, other than—

An amount included in the relevant part of the company's balance sheet that—

For the purposes of subsection (2)—

A deficit in the fund or funds maintained by the company in respect of its long-term business is treated as a realised loss. For this purpose a deficit in any such fund or funds means an excess of the liabilities of the company attributable to its long-term business over the assets representing that fund or those funds, as shown by an actuarial investigation.

Subject to subsections (2) and (4), any profit or loss arising in the company's long-term business is to be left out of account.

For the purposes of this section an “actuarial investigation” means an investigation made into the financial condition of an authorised insurance company in respect of its long-term business—

In this section “long-term business” means business that consists of effecting or carrying out contracts of long-term insurance. This definition must be read with section 22 of the Financial Services and Markets Act 2000, any relevant order under that section and Schedule 2 to that Act.

In this section “ insurance special purpose vehicle ” means a special purpose vehicle within the meaning of Article 13(26) of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) .

Where development costs are shown or included as an asset in a company's accounts, any amount shown or included in respect of those costs is treated—

Subsection (1) does not apply to any part of that amount representing an unrealised profit made on revaluation of those costs.

Subsection (1) does not apply if—

This section applies for determining the amount of a distribution consisting of or including, or treated as arising in consequence of, the sale, transfer or other disposition by a company of a non-cash asset where—

The amount of the distribution (or the relevant part of it) is taken to be—

For the purposes of subsection (1)(a) the company's profits available for distribution are treated as increased by the amount (if any) by which the amount or value of any consideration for the disposition exceeds the book value of the asset.

In this section “book value”, in relation to an asset, means—

The provisions of Chapter 2 (justification of distribution by reference to accounts) have effect subject to this section.

This section applies where—

That profit is treated as a realised profit—

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.

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

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.

This section does not apply in relation to—

Where immediately before the relevant date a company was authorised by a provision of its articles to apply its unrealised profits in paying up in full or in part unissued shares to be allotted to members of the company as fully or partly paid bonus shares, that provision continues (subject to any alteration of the articles) as authority for those profits to be so applied after that date.

For this purpose the relevant date is—

Where the directors of a company are, after making all reasonable enquiries, unable to determine whether a particular profit made before the relevant date is realised or unrealised, they may treat the profit as realised.

Where the directors of a company, after making all reasonable enquiries, are unable to determine whether a particular loss made before the relevant date is realised or unrealised, they may treat the loss as unrealised.

For the purposes of this section the relevant date is—

Except as provided in this section, the provisions of this Part are without prejudice to any rule of law restricting the sums out of which, or the cases in which, a distribution may be made.

For the purposes of any rule of law requiring distributions to be paid out of profits or restricting the return of capital to members—

In this section references to distributions are to amounts regarded as distributions for the purposes of any such rule of law as is referred to in subsection (1).

The following provisions apply for the purposes of this Part.

References to profit or losses of any description—

“Capitalisation”, in relation to a company's profits, means any of the following operations (whenever carried out)—

References to “realised profits” and “realised losses”, in relation to a company's accounts, are to such profits or losses of the company as fall to be treated as realised in accordance with principles generally accepted at the time when the accounts are prepared, with respect to the determination for accounting purposes of realised profits or losses.

Subsection (4) is without prejudice to—

“Fixed assets” means assets of a company which are intended for use on a continuing basis in the company's activities.