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Part 23U.K.Distributions

Modifications etc. (not altering text)

C1Pts. 1-39 modified (31.12.2020) by Regulation (EC) No. 2157/2001, Art. AAA1(3) (as inserted by The European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2018 (S.I. 2018/1298), regs. 1, 97 (with regs. 140-145) (as amended by S.I. 2020/523, regs. 1(2), 5(a)-(f)); 2020 c. 1, Sch. 5 para. 1(1))

Chapter 1U.K.Restrictions on when distributions may be made

IntroductoryU.K.

829Meaning of “distribution”U.K.

(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.

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

(a)an issue of shares as fully or partly paid bonus shares;

(b)the reduction of share capital—

(i)by extinguishing or reducing the liability of any of the members on any of the company's shares in respect of share capital not paid up, or

(ii)by repaying paid-up share capital;

(c)the redemption or purchase of any of the company's own shares out of capital (including the proceeds of any fresh issue of shares) or out of unrealised profits in accordance with Chapter 3, 4 or 5 of Part 18;

(d)a distribution of assets to members of the company on its winding up.

Commencement Information

I1S. 829 wholly in force at 6.4.2008; s. 829 not in force at Royal Assent see s. 1300; s. 829 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)

General rulesU.K.

830Distributions to be made only out of profits available for the purposeU.K.

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

(2)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.

(3)Subsection (2) has effect subject to sections 832 [F1, 833A] and 835 (investment companies [F2and Solvency 2 insurance companies]).

Textual Amendments

Commencement Information

I2S. 830 wholly in force at 6.4.2008; s. 830 not in force at Royal Assent see s. 1300; s. 830 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)

831Net asset restriction on distributions by public companiesU.K.

(1)A public company may only make a distribution—

(a)if the amount of its net assets is not less than the aggregate of its called-up share capital and undistributable reserves, and

(b)if, and to the extent that, the distribution does not reduce the amount of those assets to less than that aggregate.

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

(3)“Liabilities” here includes—

(a)where the relevant accounts are Companies Act accounts, provisions of a kind specified for the purposes of this subsection by regulations under section 396;

(b)where the relevant accounts are IAS accounts, provisions of any kind.

(4)A company's undistributable reserves are—

(a)its share premium account;

(b)its capital redemption reserve;

(c)the amount by which its accumulated, unrealised profits (so far as not previously utilised by capitalisation) exceed its accumulated, unrealised losses (so far as not previously written off in a reduction or reorganisation of capital duly made);

(d)any other reserve that the company is prohibited from distributing—

(i)by any enactment (other than one contained in this Part), or

(ii)by its articles.

The reference in paragraph (c) to capitalisation does not include a transfer of profits of the company to its capital redemption reserve.

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

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

Commencement Information

I3S. 831 wholly in force at 6.4.2008; s. 831 not in force at Royal Assent see s. 1300; s. 831 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)

Distributions by investment companies [F3or Solvency 2 insurance companies] U.K.

Textual Amendments

832Distributions by investment companies out of accumulated revenue profitsU.K.

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

(2)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.

(3)It may make such a distribution only—

(a)if the amount of its assets is at least equal to one and a half times the aggregate of its liabilities to creditors, and

(b)if, and to the extent that, the distribution does not reduce that amount to less than one and a half times that aggregate.

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

(a)in the case of Companies Act accounts, provisions of a kind specified for the purposes of this subsection by regulations under section 396;

(b)in the case of IAS accounts, provisions for liabilities to creditors.

(5)The following conditions must also be met—

[F4(a)the company's shares must be shares admitted to trading on a [F5UK regulated market];]

(b)during the relevant period it must not have—

(i)F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(ii)applied any unrealised profits F7. . . in paying up debentures or amounts unpaid on its issued shares;

(c)it must have given notice to the registrar under section 833(1) (notice of intention to carry on business as an investment company)—

(i)before the beginning of the relevant period, or

(ii)as soon as reasonably practicable after the date of its incorporation.

(6)For the purposes of this section—

(a)F8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)the “relevant period” is the period beginning with—

(i)the first day of the accounting reference period immediately preceding that in which the proposed distribution is to be made, or

(ii)where the distribution is to be made in the company's first accounting reference period, the first day of that period,

and ending with the date of the distribution.

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

Textual Amendments

Commencement Information

I4S. 832 wholly in force at 6.4.2008; s. 832 not in force at Royal Assent see s. 1300; s. 832 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)

833Meaning of “investment company”U.K.

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

(a)has given notice (which has not been revoked) to the registrar of its intention to carry on business as an investment company, and

(b)since the date of that notice has complied with the following [F9requirement].

(2)[F10The requirement is]

(a)that the business of the company consists of investing its funds [F11in shares, land or other assets], with the aim of spreading investment risk and giving members of the company the benefit of the results of the management of its funds;

(b)F12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)F12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d)F12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)F13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)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.

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

Textual Amendments

Commencement Information

I5S. 833 wholly in force at 6.4.2008; s. 833 not in force at Royal Assent see s. 1300; s. 833 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)

[F14833A.Distributions by insurance companies authorised under the Solvency 2 DirectiveU.K.

(1)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.

(2)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).

(3)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.

(4)The formula is,

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).

(5)The items within this subsection are—

(a)if the value of shares held by the company in a qualifying investment subsidiary exceeds the value of the consideration given by it for their acquisition, the amount of that excess;

(b)any asset of the company representing a surplus in a defined benefit pension scheme;

(c)if the value of the assets held by the company in a ring-fenced fund exceeds the value of the liabilities incurred by the company in respect of that fund, the amount of that excess;

(d)the amount of any liability of the company in respect of deferred tax shown in the company’s balance sheet that relates to any asset within paragraph (a), (b) or (c);

(e)if—

(i)the company has permission under regulation 42 of the Solvency 2 Regulations 2015 to apply a matching adjustment to a relevant risk-free interest rate term structure to calculate the best estimate of a portfolio of the company’s life insurance or reinsurance obligations, and

(ii)the value of the portfolio of the company’s assets assigned by the company to cover the best estimate exceeds the value of the portfolio of the company’s life insurance or reinsurance obligations,

the amount of that excess; and

(f)the following capital items of the company—

(i)paid-in ordinary share capital together with any related share premium account;

(ii)paid-in preference shares which are not liabilities of the company together with any related share premium account;

(iii)capital redemption reserve; and

(iv)any other reserve that the company is prohibited from distributing (ignoring this Part for this purpose).

(6)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.

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

(a)rules made by the Prudential Regulation Authority under Part 9A of the Financial Services and Markets Act 2000 implementing Articles 75 to 85, and 308b to 308e, of the Solvency 2 Directive; and

(b)Articles 7 to 61 of Commission Delegated Regulation (EU) 2015/35 supplementing that directive.

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

(a)this section is to be applied on the assumption that the company carries on only the long-term business; and

(b)the remainder of this Part is to be applied on the assumption that the company carries on only that other insurance business;

and, in applying paragraph (a) or (b), such apportionments of amounts referable to the long-term business or other insurance business are to be made as are just and reasonable.

(9)In this section—

834Investment company: condition as to holdings in other companiesU.K.

F15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

835Power to extend provisions relating to investment companiesU.K.

F16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .