Tax & Accounting News

Fears over rise in illegal dividends

24/08/2010

Fears are growing that an increasing number of directors are taking illegal dividends or loans from their companies, depriving creditors of funds if the business hits financial trouble.

HM Revenue and Customs (HMRC) – usually one of the largest unsecured creditors in the event of a business failure – has asked insolvency practitioners to be aware of this problem, and has threatened to pursue directors which owe it money through the courts if necessary.

A dividend payment would be considered illegal if the company has not accumulated sufficient profits to finance it.

According to figures from the Insolvency Service, 2,169 directors of insolvent companies faced disqualification proceedings in the year to 31 March 2010, an increase of 17 per cent on the previous year.