Precision Dippings Ltd v Precision Dippings Marketing Ltd
A dividend paid without the relevant accounts required by statute is unlawful, and the recipient holds it on constructive trust for the company.
Facts
Precision Dippings paid a dividend of £60,000 to its parent company. The auditors had qualified the accounts, and the statutory procedure required the auditors to state whether the qualification was material to the lawfulness of the dividend. The auditors did not make this statement until after the dividend had been paid. When the company went into liquidation, the liquidator sued the parent company to recover the dividend.
Legal principle
The Court of Appeal held that the dividend was unlawful, because the statutory procedure had not been followed, and that the parent company held it on constructive trust for the company. Dillon LJ said that the statutory requirements for the payment of dividends were not mere procedural formalities, but were intended to protect creditors, and they could not be waived by the shareholders. The payment was ultra vires, so it could not be ratified, and the parent company, which knew the facts, was liable to repay it.
Related cases on share capital and distributions
- Aveling Barford Ltd v Perion Ltd [1989] BCLC 626
- Bairstow v Queens Moat Houses plc [2001] EWCA Civ 712, [2002] BCC 91
- Belmont Finance Corp Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393
- Brady v Brady [1989] AC 755
- Re Exchange Banking Co (Flitcroft's Case) (1882) 21 Ch D 519
- Re Halt Garage (1964) Ltd [1982] 3 All ER 1016
- It's a Wrap (UK) Ltd v Gula [2006] EWCA Civ 544, [2006] BCC 626
- MacPherson v European Strategic Bureau Ltd [2000] 2 BCLC 683
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