A new approach to dividends in limited-liability companies
For many companies in Poland, the 30th of June is the date set for holding their ordinary (annual) shareholders’ meeting. One of the points on the agenda should be adoption of a resolution on division of profit (or coverage of loss). The profit shown in the annual financial statement may be earmarked, among other things, to payment of a dividend to the shareholders. It seems like an opportune moment to examine the recent amendment of the regulations governing dividends in limited-liability companies.
The provisions of the Commercial Companies Code governing dividends in limited-liability companies were recently changed by the Act of 9 November 2018 Amending Certain Acts to Simplify Tax and Commercial Law for Businesses. The changes involve setting the record date for dividends and the date for payment of dividends, as well as the issue of refund of advances against anticipated dividends. The new wording entered into force on 1 March 2019.
Record date
The basic rule that the persons entitled to receive a dividend for a given financial year are those holding shares in the company as of the date of adoption of the resolution on division of the profit did not change. However, the Commercial Companies Code provides for the possibility of including in the articles of association authorisation for the shareholders’ meeting to set a date as of which the list of shareholders entitled to receive dividends is drawn up, i.e. a record date for dividends.
In this particular instance, when the articles of association authorise the shareholders’ meeting to set a record date, the previous rule provided that the record date must fall within two months from the date of adoption of the resolution on division of the profit. The code did not specify what happens in a situation where the articles of association include this authorisation but the shareholders’ meeting does not set a record date in the resolution. The amendment that entered into force in March specifies that in that case, the record date is the date of adoption of the resolution on division of the profit.
Payment date
The provision on the date for payment of dividends also changed. As a rule, this date should be specified in the shareholders’ resolution. But what if the shareholders’ meeting fails to specify the date for payment of the dividend? Previously, the code provided that the management board would then be entitled to set the date when the dividend should be paid. But this approach generated concern, as there was a risk that the management board would delay setting a payment date, and it was not bound by any deadline in this respect. Consequently, the shareholders might go a long time without receiving the dividends they were entitled to.
Under the current regulations, the management board is no longer entitled to set the dividend payment date. If the date is not stated in the resolution of the shareholders’ meeting, the dividend must be paid promptly following the record date.
Refund of advances against anticipated dividend
Effective 1 March 2019, the amendment also introduced a regulation providing for the possibility of refund of advances paid against an anticipated dividend. Thus if it turns out that the company actually generated a loss or earned a profit lower than the advances already paid out to shareholders, the shareholders are required to return all or part of the advance (as the case may be). However, the amendment does not directly address the situation where an advance has been paid out, and the company does end the year with a profit, but ultimately the resolution of shareholders does not designate the profit for distribution of a dividend, but instead allocates the profit for example to supplementary or reserve capital.
Summary
The new provisions clarify issues connected with establishment of the record date and the date for payment for dividends. This should help shareholders pursue claims for payment of dividends in situations where the shareholders’ meeting fails to set a payment date. The aim of the changes concerning refund of advances against anticipated dividends was to secure the interests of the company and to protect minority shareholders. It appears that the current state of the law should help avoid certain disputes concerning dividends in limited-liability companies.
Julia Dolna, M&A and Corporate practice, Wardyński & Partners
