In re Exchange Banking Company or Flitcroft's case (1882) LR 21 Ch D 519 is a UK company law case concerning the payment of dividends. It was decided when the law was that dividends should only be paid out of a company's profits, although the courts deferred to company directors to define their own rules for determining when that was so.

Facts

The directors of the Exchange Banking Company had presented account reports before shareholder meetings, which were untrue. Between 1873 and 1878 they paid half yearly dividends totalling £3,192 when they knew items in the accounts were bad debts, irrecoverable and consequently there were no distributable profits. The shareholders acted on the reports and declared dividends. The liquidator issued a summons against five former directors.

High Court

Bacon VC found that the directors were liable to repay the unlawful dividends.

Court of Appeal

Lord Jessel MR agreed the directors must repay the money. Capital invested by shareholders (at this time the aggregate of the nominal share value, not including share premiums, as legal capital is defined under CA 2006) could not be returned to them, and dividend

Dividend

Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

s should be paid out of profits only. He said the following.

See also

• UK company law
• Oakbank Oil Company Ltd v Crum (1882) 8 App Cas 65
• Lee v Neuchatel Asphalte Company (1889) LR 41 Ch D 1