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

To ask the Secretary of State for Business, Energy and Industrial Strategy, what steps he is taking to prevent directors paying themselves dividends and forcing companies into administration to avoid consumer redress.

Under UK company law, directors may pay dividends only where a company has sufficient distributable reserves, based on the company’s realised profits minus any realised losses.

In the event of insolvency, it is part of the administrator’s role to scrutinise payments made to shareholders in the period before the insolvency to identify any payments which may have been illegal. In such cases, the courts have wide powers to apply a variety of sanctions and remedies, including ordering the recovery of amounts from recipients and compensation orders against directors enforceable against their personal assets.

The Government is currently consulting on proposals to increase transparency in how companies demonstrate that dividends are affordable, as part of the White Paper on Restoring Trust in Audit and Corporate Governance. This includes a proposed requirement that directors of large companies should disclose at a minimum the company’s known distributable reserve before paying any dividend, and state that it is their reasonable expectation that the proposed dividend would not threaten the company’s insolvency over the following two years.