What to investigate and how: Ultra vires dividends: What is an ultra vires dividend?
An ultra vires dividend commonly arises in one of two ways. Sometimes when audited accounts are prepared at the end of an accounting period it is found there are insufficient profits to cover a dividend (whether interim or final) which may have already been paid. The dividend which has been paid may then be regarded as ultra vires i.e. it has been paid unlawfully. Ultra vires means ‘outside the power’ of the company. Alternatively, dividends may have been paid in the period between the preparation of the last audited or submitted accounts, and the commencement of the liquidation. It is unusual for any audited accounts to be prepared for this period. It will therefore be difficult for the company to demonstrate the monies were paid out of retained profits made. Under these circumstances the dividend may be regarded as ultra vires.
