Liability of Directors, Shareholders and Auditors for Improper Dividend
The directors are personally liable to account for improper payment of dividend to the extent to which it has caused loss to the company. If for instance they have paid dividend out of capital they have to compensate the company for the loss. On the other hand, if a member received dividend knowing that it is paid out of capital he is liable to make good the loss of the company and the directors can recover the amount so paid. At the instance of any individual shareholder, the directors can recover the amount so paid. At the instance of any individual shareholder, the directors can be restrained from going ahead with the payment of an improper and illegal dividend.
And auditor who is party to the payment of dividend that is improper is liable to be proceeded against and the amount that is improperly paid may be recovered from him.
Once a dividend is declared a shareholder has the right to claim dividend against the company. A shareholder cannot compel the company by any process of law to declare a dividend. The usual practice is for the Board to recommend and the annual general meeting to declare the dividend. The annual general meeting will have the power, subject to the provisions of the Act to determine the amount of dividend to be distributed.
Revocation of Declared Dividend
As already stated earlier, a dividend including interim dividend once declared becomes a debt and cannot be revoked, except with the consent of the shareholders.
If a dividend is declared and paid to shareholders, the character of the payment cannot be altered by a subsequent resolution.
But where a dividend has been illegally declared, the directors will be justified in revoking the declared dividend. If an illegally declared dividend is paid then the directors shall be responsible, liable and accountable to the company personally.
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