Introduction

The issues of which profits are realised and which are distributable are important. These issues arise for an individual company, not for a group: legally it is companies that make distributions, not groups. Thus, for example, in a simple group comprising a parent and its subsidiary, the subsidiary may make a distribution to its parent out of profits available for that purpose. The parent may then, if it has profits available for distribution (and this does not automatically follow simply because a subsidiary has dividended up some of its profits), make a distribution to its shareholders. Therefore, to speak of the group having distributable profits or having made a distribution is not valid. Problems can sometimes arise in a group, for all sorts of reasons, in getting distributions up from a profitable subsidiary to the top parent company so that it has sufficient distributable profits to make a distribution to its shareholders.

Accordingly, the matters discussed in this chapter relate to individual companies and the discussion concerns what amounts are realised and distributable for UK companies only. For companies registered in other countries, the rules may be different from those in the UK, although the basic rules for companies registered in other EU Member States are likely to be broadly similar (although the resulting number may be different due to different GAAPs applying), as the national laws of all Member States are based on the Second EU Company Law Directive of 1976, and it is the law that is the starting point for calculating realised and distributable profits.

‘Realised’ and ‘distributable’

The two terms ‘realised’ and ‘distributable’ are related but separate and it is important to distinguish them.