DIVIDENDS

18,

16 Ch. D. 344; Lambert v. Neuchatel Asphalte Co. (1882),
51 L.J. Ch. 882], and varies with the class of business carried
on. The question whether a company has profits available
for distribution must be answered according to the circum-
stances of each particular case, the nature of the company,
and the evidence of competent witnesses [Bond v. Barrow
Hematite Co. (1902), I Ch. 353].

The following are some general principles extracted from
the more important cases on the subject:

1. The ‘fixed capital’ of a company need not be maintained Fixed and
out of revenue, but the ‘circulating capital’ must be made Piroildimg

. 2 : pital.
good before dividends are paid.

Fixed capital is used to denote that portion of the com-
pany’s assets which consists of investments of a more or less
permanent form, such as land, buildings, plant, or securities
purchased for the sake of the income they produce.

Circulating capital, on the other hand, consists of that
portion of the company’s assets which is used for ‘turnover’
purposes. Incidentally it may be income-bearing while
retained, e.g. shares in a dividend-paying mine bought as a
speculation, but intended to be used as stock-in-trade, and
to bring profit to the company by being sold [Verner v.
General and Commercial Trust (1894), 2 Ch. 239]. For a
judicial explanation of the nature of fixed and floating capital,
see Ammonia Soda Co. v. Chamberlain (1018), r Ch. 266,
per Swinfen Eady, L.J., at pp. 286, 287.

2. If the objects of a company include the investment of
capital in wasting property, depreciation by waste need not
necessarily appear in the revenue account, but may, if the
regulations so provide, be dealt with in the capital account
“Lee v. Neuchatel Asphalte Co. (1889), 41 Ch. D. 1].

Where a company’s business is to acquire a wasting pro-
perty, e.g. a coal mine under a lease for years, and making
a profit by working it, the diminution of the property is a
gradual consumption of the capital, and it is for the share-
holders to decide whether they will have a sinking fund to
meet the waste [Verner v. General and Commercial Trust
1894), 2 Ch. 239].

3. A company may set off an appreciation in the value of
its capital assets, as ascertained bv a bond fide valuation,
against losses on revenue account [Ammonia Soda Co. v.
Chamberlain (1918), 1 Ch. 266]. Commercially, however,
the greatest caution should be exercised in distributing
dividends on the basis of a valuation showing an appreciation.
[n particular the valuation should have been obtained from