Undue dividend - when do we deal with it?

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The concept of dividends is directly related to the subject of commercial law. Shareholders have the right to download it provided that certain criteria are met. Sometimes, however, the dividend is collected illegally - what to do in this case? In the article you will find out what an undue dividend is.

What is a dividend?

The dividend is a part of the net profit generated by a given enterprise - mainly commercial companies. It is paid to partners or persons holding shares in a given company. As a rule, it is transferred to eligible persons proportionally.

The dividend is normally a cash payment. However, the legislator allows for the payment of the profit also in kind - e.g. in the form of products manufactured by a given company. In practice, such a solution is relatively rare.

We should remember, however, that the amount allocated for distribution among partners may not exceed the profit for the last financial year increased by undistributed profits from previous years and the amounts transferred from the supplementary and reserve capitals created from profit, which may be allocated for distribution. This amount should be reduced by uncovered losses, own shares and amounts that, according to the law or the articles of association, should be transferred from the profit for the last financial year to supplementary or reserve capital.

Judgment of the Provincial Administrative Court in Rzeszów of September 27, 2007 (file reference number I SA / Rz 585/07)

It is necessary to distinguish between the general right to profit which a shareholder has under his shareholding rights and the right to profit referred to in Art. 191 § 1 of the Commercial Companies Code. The difference between these rights is that the latter already covers the payment claim.

The shareholders' meeting may, by its own resolution, define the date of performance - payment of the dividend. As a consequence, it is permissible to change the dividend payment date set by the shareholders' meeting.

Entitled to dividends

Pursuant to Art. 193 of the Commercial Companies Code, the shareholders who were entitled to the shares on the date of the resolution on the distribution of profit are entitled to dividends for a given financial year. The articles of association may authorize the shareholders' meeting to define the date on which the list of shareholders entitled to dividends for a given financial year is determined (dividend date).

The dividend date is set within two months from the date of adopting the resolution on allocating the company's profit for distribution. If the resolution does not specify this day, it becomes the day of adopting the resolution on the distribution of profit. The dividend is paid on the date specified in the shareholders' resolution. If no such date is specified, the dividend is paid immediately after the dividend date.

Decision of the Supreme Court of May 8, 2019 (file reference number V CSK 109/18)

Entitled to the dividend for a given year are the partners who were entitled to shares on the date of the resolution on the distribution of profit. If, on the date of adoption of the resolution, the previous shareholder is dead, the dividend is due to his heirs as a result of participation in the company.

In addition to partners or shareholders, the following are also entitled to dividends:

  • bondholders - provided that their right is entered in the relevant register;

  • members of governing bodies or all employees of the company - in terms of royalties and profit awards;

  • pledgees, users or tenants - when the share or share is encumbered with the right of lien, usufruct or lease.

Undue dividend

The dividend is not payable to partners and shareholders who do not meet the conditions of art. 193 of the Commercial Companies Code. For example, if such a person held shares in the company for the entire financial year for which the profit is distributed, and then sold them before the date of the resolution on the distribution of the dividend, he will not be entitled to the net profit generated.

The following are also not entitled to dividends:

  • holders of redeemed shares by means of the so-called utility shares;

  • persons holding company incorporation certificates;

  • people with the so-called own shares in the company;

  • the buyer of shares previously vested in the company itself.

Therefore, we speak of an undue dividend when it is paid to an unauthorized person or in an excessively high amount (inconsistent with the division contained in the resolution regulating this issue). Obviously, such a situation gives rise to a recourse claim on the part of the company itself.

According to the content of Art. 198 of the Commercial Companies Code, a partner who received the payment contrary to the provisions of the law or the provisions of the partnership agreement (the recipient) is obliged to return it. The members of the company's governing bodies who are responsible for such payment are responsible for its return to the company jointly and severally with the recipient. If the reimbursement of the payment cannot be obtained from the recipient and from the persons responsible for the payment, the shareholders are responsible for the loss in the company's assets, which is required to fully cover the share capital, in relation to their shares. The amounts that cannot be collected from individual partners are distributed among the others in relation to the shares (the obligated parties cannot be released from liability towards the company).

Judgment of the SA in Szczecin of February 16, 2016 (file reference number I ACa 751/15)

In the light of Art. 198 of the Commercial Companies Code, it is unacceptable to make any property transfers between the partners and the company without a legal basis, and the payment referred to in this provision is any payment inconsistent with the law or the provisions of the company's articles of association. The protection provided for in Art. 198 of the Code of Commercial Companies and Partnerships is intended to ensure the integrity of the assets of a limited liability company, therefore partners may only receive payments from the company that are provided for in the provisions of the Commercial Companies Code. The provision of art. 198 § 1 of the Code of Commercial Companies and Partnerships covers all situations in which a partner of a limited liability company received a cash benefit from the company that is not justified by law or contract.

Undue dividend - claims limitation

The obligation to return an unduly collected dividend does not depend on the good or bad faith of the partner who received the undue benefit. The most important thing is the very fact of obtaining such a benefit against the resolution of the company and the provisions of the Code of Commercial Companies. Importantly, the company does not have to show any damage on its side - the return of an unduly collected dividend is not a compensation.

Claims due to the company for the payment of undue dividends shall expire after 3 years from the date of payment, except for claims against the recipient who knew about the unlawfulness of the payment received.

In the case of claims directed against the recipient who knew about the unlawfulness of the payment received (he acted in bad faith), the limitation period is longer, as it is as long as 6 years. This rule results from the regulation of Art. 118 of the Civil Code.

We should also remember that the limitation period is interrupted:

  • by any action before a court or other body appointed to hear cases or enforce claims of a given type, or before an arbitration court, undertaken directly for the purpose of pursuing or determining, or satisfying or securing a claim;

  • by an admission of the claim by the person against whom the claim is entitled;

  • by initiating mediation.

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Undue dividend - summary

The undue dividend is a benefit from the company's annual net profit which has been paid to an unauthorized person. It does not matter whether the recipient of such a benefit acted in bad or good faith - or whether he knew that he was not entitled to dividends. If any unauthorized benefits are collected from the company's profit, they should be returned to the company immediately. Claims for payment of undue dividend expire, as a rule, after 3 years from the date of payment, unless the recipient acted in bad faith - then the limitation period is as long as 6 years.