Disclosure of unlawful dividends, share buy-backs and financial assistance and remedial measures taken

Domino’s Pizza Group plc – Annual report 25 December 2016

Industry: food and drink

Report of the Audit Committee (extract)

Significant accounting issues (extract)

  • distributions made other than in compliance with the Companies Act

 

– following the failure to file interim parent company financial statements at Companies House during the year, a thorough review of distributable reserves was performed by management which identified that certain distributions had been made otherwise than in accordance with the Act. This resulted in the circular to shareholders dated 1 December 2016 and approval by the shareholders of the resolutions to restore all parties to the position originally intended. Strict procedures have been put in place to ensure that this omission will not be repeated;

Directors’ remuneration report (extract)

In 2016 the Board became aware of certain issues in respect of the Company’s procedures for the payment of certain dividends, share buybacks and EBT funding in that year and certain prior years. At a General Meeting held on 10 January 2017, 99.95% of shareholders gave the Board authority to enter into various deeds of release to put all potentially affected parties, so far as possible, in the position in which they were always intended to be had the relevant distributions been made in accordance with the Companies Act. The Committee has considered carefully whether there was a case for recovering incentive awards under the Company’s incentive plans as a result of this breach. It has concluded that this is not necessary as the actual reported earnings figures (upon which certain incentive awards’ outcomes were based) were a fair reflection of the actual profit delivered by the Company and the number of shares that were used to determine EPS was the actual number of shares in issue in each of the impacted years.

Directors’ report (extract)

1 During the course of the financial period for the 52 weeks ended 25 December 2016, the Directors became aware that certain Relevant Distributions had been made during the period from 2000 to 2016 otherwise than in accordance with the Companies Acts 1985 and 2006 (‘the Acts’). The Relevant Distributions included various share buybacks, as described and defined in the Circular dated 1 December 2016 (‘the Circular’) sent to shareholders. As such, the cancellation of those Ordinary shares resulting from the purported buybacks was void. 22,068,513 of the Ordinary shares which were the subject of the share buybacks were purportedly cancelled. Therefore, as at 25 December 2016, the Company had 520,742,012 Ordinary shares in issue. Following the passing of the resolution (as defined in the Circular) on 10 January 2017, the 22,068,513 Ordinary shares were bought back and cancelled, following which the total issued share capital of the Company was 498,683,862 (including 4,072,590 Ordinary shares held in treasury). As at 10 January 2017, and following the resolution being passed and the share buybacks being effective, the total voting rights were 494,611,272. The overall effect of the passing of the resolution was to put all potentially affected parties so far as possible in the position in which they were always intended to be had the Relevant Distributions been made in accordance with the Acts. The resolution constituted a related party transaction as defined in the Listing Rules and under the terms of IAS 24. For further details refer to note 35 of the Company accounts on page 90.

Notes to the Group financial statements (extract)

  1. Related party transactions (extract)

Historic distributions to directors

As disclosed in note 10 to the Company Financial statements, during the year the Directors became aware that payment of certain of its dividends and purchases of certain of its own Ordinary Shares in certain Relevant Financial Periods from 2000 to 2016 were made otherwise than in accordance with the Companies Act 2006. In addition, the Director’s became aware that it gave assistance to its Employee Benefit Trust on a number of occasions which did not comply with the requirements of the Act.

At a General Meeting of the Company’s shareholders held on 10 January 2017, a resolution was passed which authorised the appropriation of distributable profits to the payment of the relevant distributions and removed any right for the Company to pursue shareholders or directors for repayment. This constituted a related party transaction under IAS 24.

The Directors’ who held shares in the Company would have received dividends in relation to their shareholdings which would have included certain of the unlawful distributions made. In addition, the financial assistance provided to the EBT to purchase shares to satisfy awards of LTIPs were issued to previous Directors’ of the Company.

Notes to the Company financial statements (extract)

  1. Reconciliation of shareholders’ funds and movements on reserves (extract)

During the year, the Directors became aware that payment of certain of its dividends and purchases of certain of its own Ordinary Shares in certain Relevant Financial Periods from 2000 to 2016 were made otherwise than in accordance with the Companies Act 1985 and Companies Act 2006 (the “Acts”). In addition, the Director’s became aware that it gave assistance to its Employee Benefit Trust on a number of occasions which did not comply with the requirements of the Act. The Act provides that, where a public limited company gives assistance to its employee benefit trust, it is only permitted to give such assistance to the extent that the net assets of the company are not reduced by such assistance or, to the extent that the net assets are so reduced, the assistance is provided out of distributable profit. The total impact of these transactions was £84,711,000.

At a General Meeting of the Company’s shareholders held on 10 January 2017, a resolution was passed which authorised the appropriation of distributable profits to the payment of the relevant distributions and removed any right for the Company to pursue shareholders or directors for repayment. The overall effect of the passing of this resolution was to put all potentially affected parties so far as possible in the position in which they were intended to be had the relevant distributions been made in full compliance with the Acts 2006.

The amounts included within the financial statements have not been restated for the effect of the unlawful distributions and financial assistance as the financial resources had left the Company and the intention of the resolution was to remove any right for the Company to pursue shareholders or directors for repayments. The transactions as undertaken, were correctly accounted for in the relevant period in which the distributions of resources were made and therefore no restatements have been recorded.

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