Britvic plc – Annual report – 30 September 2020
Industry: food and drink
Notes to the company financial statements (extract)
11. Dividends paid and proposed
12. Distributable reserves
Britvic plc, the parent company of the Group, holds investments in subsidiaries and acts as a financing entity for the Group. It derives its profits from dividends paid by subsidiary companies and interest earned on intra group loans. The Board reviews the level of distributable reserves in the parent company prior to the declaration of interim and final dividends to shareholders to ensure distributable reserves provide adequate cover for dividend payments.
In accordance with the UK Companies Act 2006 section 831(2), a public company may make a distribution only if, after giving effect to such distribution, the amount of its net assets is not less than the aggregate of its called up share capital and non-distributable reserves as shown in the relevant accounts. The company must also determine what is realised and unrealised in accordance with the guidance provided by ICAEW TECH 02/17BL and the requirements of UK law.
Reserves available for distribution at 30 September 2020 and 29 September 2019 were comprised as follows:
* Other non-distributable reserves represent the excess of accumulated unrealised profits over accumulated unrealised losses. They comprise the cumulative credit to equity arising from equity-settled share-based payments to the employees of subsidiary companies, so long as the associated investment in subsidiary is not impaired or disposed of, and net unrealised gains in the company’s hedging reserve related to cash flow hedges.
Past dividends
During the year, the company has discovered that certain past dividends were made otherwise than in accordance with the Companies Act 2006. This occurred because payment of certain dividends reduced the level of the company’s net assets below the aggregate of its called up share capital and non-distributable reserves, as determined in the last relevant accounts prior to the dividend payment. This principally resulted from the failure to identify certain unrealised profits arising from equity-settled share-based payments as non-distributable when determining distributable reserves. Had the company correctly identified the level of non-distributable reserves, it would have called upon subsidiary companies to increase the level of dividends paid to the parent company prior to each year-end date as there were adequate reserves available in the wider group to satisfy the planned dividend payments. During the year ended 30 September 2020, additional dividends have been paid by subsidiaries to the parent company in order to guard against any future non-compliance with the Companies Act.
The affected dividends were the FY13 interim dividend paid on 2 August 2013, the FY13 final dividend paid on 7 February 2014, the FY14 interim dividend paid on 11 July 2014, the FY18 final dividend paid on 4 February 2019, the FY19 interim dividend paid on 15 July 2019 and the FY19 final dividend paid on 6 February 2020 (together, the Relevant Dividends and each a Relevant Dividend). In aggregate, the Relevant Dividends paid in excess of distributable reserves totalled £100.7 million.
As a result, the company could have claims against the shareholders who received the Relevant Dividends and the directors of the company at the relevant time. The company has no intention of pursuing any such claims. Instead, the company is proposing certain resolutions at its forthcoming AGM to put the company, its current and former shareholders and its current and former directors in the position they would have been in, had the Relevant Dividends fully complied with the Act. This includes resolutions to appropriate distributable profits to the Relevant Dividends that have arisen subsequent to each Relevant Dividend. This also includes entering into deeds of release to release the shareholders who received the Relevant Dividends, and the directors of the company at the time the Relevant Dividends were made, from any liability to repay any amounts to the company. The Directors are related parties of the company and therefore the entry by the company into a deed of release in favour of the Directors constitutes a related party transaction for the purposes of the Listing Rules.
The amounts included within the financial statements have not been restated for the effect of the distributions made otherwise than in accordance with the Act as the company has no intention to pursue shareholders or directors for repayments of the Relevant Dividends and seeks to remediate the situation at the forthcoming AGM.
Accounts examples 