On 1 March 2019 The new provisions on the advance payment of dividends in the company with the o. o. will enter into force. They constitute another amendment to the Commercial Companies Code (hereinafter: ‘k.s.h.’), implemented under Act dated 9 November 2018 amending certain laws to introduce simplifications for entrepreneurs in tax and economic law (Journal of Laws of 2018, item 2244, hereinafter referred to as ‘the Act’). Thanks to the new rules, the advance on the dividend will definitely be repayable.
The institution of the so-called pre-financing dividend in the company z o. o. is regulated by the regulations Article 194(195) k.s.h. Its essence boils down to the fact that the board can pay dividends to shareholders for the future profit that the company expects to achieve in the future, i.e. in the course of the financial year not yet completed. However, this possibility is limited by the following conditions.
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the existence of an authorisation to pay an advance dividend in the company's contract,
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a forecast of a clean profit that can be paid in the form of dividends,
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the company has sufficient resources to pay the advance dividend,
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the holding of approved financial statements for the previous financial year where profit has been demonstrated.
If all these conditions are met, the Management Board will be authorised to pay an advance dividend in the maximum amount of half the profit achieved by the end of the previous financial year. This amount shall be increased by the reserve capital created from the profit which may be held by the management in order to pay the advances, and shall reduce the uncovered losses and own shares.
Although the provisions provide for the provision of benefits under Article 194 and 195 k.s.h. as an ‘advance’, there is no clear legal basis for demanding repayment.
The current rules do not provide for any standard in the event that the Management Board pays an advance dividend to the future profit, but after the end of the financial year the Company will record a loss or profit of less than the amount of the advance dividend paid.
In the doctrine of company law, consideration is given to the possibility of requesting reimbursement of advance dividends on the basis of Article 198 k.s.h. or the title of refund of an undue benefit on the basis of Article 410 Civil code. However, there is a lack of a uniform view or any meaningful position of judicate.
Thus, for the moment the advance dividend is in principle non-refundable.
In order to justify legislative interference, it was rightly considered that there is currently no clear basis for demanding that the company's funds be ‘complemented’, which are depleted by the payment of advance dividends (see justification of the Act, p. 53).
The objective of introducing additional rules was to protect the interests of the company and its creditors by providing the company with financing (see Impact Assessment on the Act, p. 6, point 8). Thus, the legislature’s assumptions clearly fit into the values protected under the current regulations of the Commercial Companies Code.
As a result, Article 195(11) k.s.h. which provides that where, in a given financial year, an advance on the proposed dividend has been paid to shareholders and the company has either taken a loss or achieved a profit of less than the advance payments paid, the shareholders shall repay the advance in full (if the loss is recorded) or in part equivalent to the profit due to the shareholder for the financial year in question (if the profit is less than the advance payments paid for the proposed dividend).
It is worth noting, on the other hand, that the Act did not introduce an analogous provision in the regulations concerning the public limited company. So, Article 349 k.s.h. still does not resolve the reverse nature of the advance dividend in the public limited company. The question may therefore be raised as to whether a similar application is acceptable Article 195(11k).s.h. on the advance dividend paid to shareholders.
Author
Justyna Kyć - Legal adviser in the Legal Department of 2017 associated with Russell Bedford Poland. He specializes in corporate customer service, in particular in drawing up and negotiating commercial contracts and providing ongoing legal advice.