INTERIM PAYMENTS TOWARDS AN EXPECTED DIVIDEND – REQUIREMENTS AND AMOUNT OF PAYMENTS
In addition to the above requirements, pursuant to Article 195(1) of the Commercial Companies Code**,** a company may pay interim dividends against the expected dividend if its approved financial statements for the previous year show a profit. The amount of interim payments may not exceed half of the profit earned since the end of the previous financial year, increased by reserve funds created from profit which the management board may use for the payment of interim payments, and reduced by uncovered losses and treasury shares.
OBLIGATION TO REPAY ADVANCES PAID
Until the amended provisions of the Commercial Companies Code came into force in 2019, there were no grounds for demanding that shareholders repay advances received. Until then, the provisions of the Commercial Companies Code did not provide for the possibility of repaying advances paid to shareholders where they had been paid in accordance with the requirements set out in the articles of association or the Act. Following the amendment of the provisions, Article 195 of the Commercial Companies Code was supplemented with a provision regulating the rules for the repayment of advances paid, even where these were collected in accordance with the articles of association or the provisions of the Commercial Companies Code.
Pursuant to Article 195(11) of the Commercial Companies Code, where, in a given financial year, an advance payment towards an anticipated dividend has been paid to shareholders and the company has recorded a loss or achieved a profit of an amount less than the advances paid, the shareholders shall repay the advances:
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in full – in the event of a loss; or
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in an amount corresponding to the excess over the profit attributable to the shareholder for the relevant financial year – in the event that the profit is less than the advance payments made towards the anticipated dividend.
This means that the claim for repayment of the advance payment becomes due upon determination of the profit or loss for the financial year for which the advance payments were made. It appears that the company’s claim against the partner arises upon the preparation of the financial statements and becomes due upon notification of the partner of its existence.
The relevant literature indicates that the above should also apply where the shareholders’ meeting does not allocate the profit for distribution, even though the shareholders received advance payments during the financial year towards dividends to be paid out of the profit. However, the justification for such action should stem from circumstances specific to the company (e.g. the need to carry out an unplanned but necessary investment). In the absence of such justification, a resolution to retain profits in the company, despite earlier advance payments, could be challenged by means of an action to set aside the resolution as contrary to the articles of association, which provide for the possibility of making advance payments, or to good practice, in the light of Article 249 § 1 of the Commercial Companies Code.
PAYMENT OF AN ADVANCE AND BREACHES OF THE ARTICLES OF ASSOCIATION OR THE PROVISIONS OF THE COMMERCIAL CODE
The rules on the return of dividends set out in Article 198 of the Commercial Companies Code also apply to interim payments made in anticipation of a dividend. Pursuant to Article 198(1) of the Commercial Companies Code, a shareholder who, contrary to the provisions of law or the articles of association, has received such a payment (the recipient) is obliged to return it. Members of the company’s governing bodies who are responsible for such a payment are jointly and severally liable with the recipient for its repayment to the company. However, the legislator limits this obligation to repay only to situations where the advance payments were made contrary to the provisions of law or the articles of association.
In light of the above, it should therefore be noted that, for example, if the amount of the advance payment made to a partner exceeds the maximum amount specified in Article 195 § 1 of the Commercial Companies Code, liability is borne by the members of the company’s governing bodies responsible for the payment jointly and severally with the partner.
ADVANCES RECEIVED AND DEMANDS FOR THEIR REPAYMENT DURING THE FINANCIAL YEAR
In view of the above, if an advance payment against future profits has been paid correctly, in accordance with the requirements laid down in the Act or the provisions of the articles of association, it is not possible to demand its repayment during the financial year, unless this contravenes Article 198 of the Commercial Companies Code. An advance may only be repaid if the company has incurred a loss or achieved a profit lower than the amount of the advances paid, or if the conditions set out in Article 198 of the Commercial Companies Code are met.
In the event of financial difficulties on the part of the Company following the payment of advances to shareholders, in accordance with the law and the Company’s articles of association, the Company should consult with them and explain the Company’s financial situation. The provisions of the Commercial Companies Code provide for other solutions allowing for the capitalisation of a limited liability company (sp. z o.o.), e.g. in accordance with the rules set out in Articles 177–179 of the Commercial Companies Code, through additional contributions (if such a solution is provided for in the articles of association) or the granting of a loan.
M. Chomiuk*, Commentary on Article 195 of the Commercial Companies Code*, Commercial Companies Code: Commentary, ed. Z. Jara, C.H.Beck, SIP Legalis, 2023.
Frequently asked questions
Must shareholders return advances on account of dividends if the company records a loss?
Yes, in the event that the company records a loss, shareholders are obligated to return the received advances in full. This obligation arises directly from the provisions of the Commercial Companies Code, which regulate the rules for returning paid funds.
What happens when the company achieves a profit, but it is lower than the paid advances?
In such a situation, shareholders must return the portion of the advance that corresponds to the amount exceeding the profit attributable to them for the given financial year. The return concerns only the surplus of paid funds over the actual profit.
When exactly does the demand for return of the advance on account of dividends become due?
The claim for return of the advance becomes due at the moment of determining the amount of profit or loss for the financial year for which the funds were paid. The company’s receivable usually arises from the moment of preparing the financial statement and becomes due after notifying the shareholder.
Can the company demand return of the advance during the course of the financial year?
No, demanding the return of an advance paid correctly during the financial year is not possible. Return can only occur after determining the financial result for the entire year or in case of violation of legal provisions or the company agreement.
Who is responsible for returning the advance if it was paid contrary to legal provisions or the company agreement?
A shareholder who received a payment contrary to legal provisions or provisions of the agreement is obligated to return it. Members of the company’s bodies bear joint and several liability with the shareholder for this return if they were responsible for the decision to make the payment.
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She specializes in civil, commercial and business law. In the corporate and energy department, her activities are mainly based on providing corporate services to companies, reviewing and preparing commercial contracts, drafting litigation and non-litigation pleadings and preparing analyses and legal opinions, particularly in the sphere of business law and energy law. She also has professional experience in administrative and civil proceedings, which she gained in Warsaw law firms. She supports the Firm's…
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