The second reading of the Company Law Reform Bill before the House of Lords yesterday has prompted business advisory firm Deloitte to again call for the Bill to remove requirements inhibiting the ability of private UK companies to pay dividends to shareholders.

Martyn Jones, national technical partner of Deloitte, commented: “The second reading of the Bill presents an opportunity for the government to alleviate a significant burden on business.  We currently face the danger of ‘dividend blocks’ which would unnecessarily prevent the flow of dividends to the pension schemes and other shareholders that depend on them.  Deregulation now could prevent damage to the UK economy.”

When the UK adopted the EU Second Company Law Directive in 1980 it extended the application of requirements on dividends for private companies. The current requirements combined with changes to accounting standards are increasingly restricting the ability for private companies to pay dividends.

Martyn Jones commented: “UK businesses could increasingly become unable to pay dividends on ‘technical’ rather than solvency grounds and may incur costs in trying to protect their dividend flow.  The repercussions are spreading to publicly listed companies as most have private subsidiaries on which they are dependent for their dividend flow.”

Deloitte recommends that current additional requirements perpetuated in the Bill are removed and replaced by new measures which would enable directors of private companies to declare dividends having taken due account of their duties as directors and the ability of the company to meet its debts over the coming year.

Martyn Jones commented: “The extra burden on UK companies is a domestic legal issue and we urge the government to seize the opportunity to bring in more suitable measures within the Bill.” 

Ends

Notes to Editors

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP [which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services through more than 9,000 people in 21 locations. Known as an employer of choice for innovative human resources programmes, it is dedicated to helping its clients and its people excel.] Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s acts or omissions.  Services are provided by member firms or their subsidiaries and not by DTT. Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority. The information contained in this press release is correct at the time of going to press.