Part VIII Distribution of Profits and Assets

Limits of company’s power of distribution

C1C2C3C4264 Restriction on distribution of assets.

1

A public company may only make a distribution at any time—

a

if at that time 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.

This is subject to the provision made by sections 265 and 266 for investment and other companies.

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In subsection (1), “net assets” means the aggregate of the company’s assets less the aggregate of its liabilities (“liabilities” to include any provision for liabilities or charges within paragraph 89 of Schedule 4).

3

A company’s undistributable reserves are—

a

the share premium account,

b

the capital redemption reserve,

C6C7C8c

the amount by which the company’s accumulated, unrealised profits, so far as not previously utilised by capitalisation of a description to which this paragraph applies, exceed its accumulated, unrealised losses (so far as not previously written off in a reduction or reorganisation of capital duly made), and

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any other reserve which the company is prohibited from distributing by any enactment (other than one contained in this Part) or by its memorandum or articles;

and paragraph (c) applies to every description of capitalisation except a transfer of profits of the company to its capital redemption reserve on or after 22nd December 1980.

4

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