Company dividends – should they be paid?

Holding AGMs, and other shareholder meetings, is a challenge during the pandemic. Arrangements for AGMs are further complicated by a fast-changing environment dictating changes to the business that companies need to table -This is especially true of dividends.

Companies are quite properly keeping their financial position under close review. Consequently, in the space of a month, a week or sometimes days, a board decision to recommend or declare a dividend is no longer appropriate for a company managing its cash reserves.

A problem can therefore arise when a board changes its collective mind. Helpfully the Chartered Governance Institute (ICSA) has published a guidance note on the withdrawal or amendment of dividend resolutions. Set out below are a number of key questions answered.

Can a company withdraw or amend its dividend resolution? Subject to its articles, which usually permit shareholders to approve a final dividend only up to the amount recommended by directors, a company may withdraw or amend its dividend resolution at any time prior to the resolution being put to the AGM. However, if the market expected the directors to recommend a final dividend the company may need to explain its rationale to the market.

What if a company changes its mind after publishing the notice of meeting? A company should notify shareholders, explaining why the resolution is to be amended or withdrawn. An announcement should be made to the market.

How late can the board withdraw or amend a resolution? This can happen at any stage before the resolution is put to the meeting. Any steps taken by the AGM chair to amend or withdraw a resolution should be in compliance with the company’s articles. Again, an announcement should be made to the market.

What if the shareholder resolution has been passed? A final dividend becomes a debt due once the resolution is passed by shareholders. At that point it is too late for a company to withdraw or amend a final dividend.

What about an interim dividend? An interim dividend will not form part of a company’s AGM business. A company’s directors alone decide whether to pay an interim dividend. This gives greater control to the directors to announce an interim dividend and to cancel it or vary its terms.

The guidance from ICSA additionally addresses how to treat proxy votes submitted before a resolution is amended, together with the content requirements of market announcements. However, as part of the decision-making process to withdraw or amend its dividend, a company should take advice to determine the correct steps based on the facts specific to it.

Click here for further insight into holding company general meetings during the crisis.