CHAPTER XVII
DIVIDENDS

Payment of
Interest out
of Capital.

Payment of
Dividends

T'HE payment of a dividend is a distribution, intended to be
made periodically by a company among its shareholders, of
its net revenue or profits. No dividend can be paid out of
capital, except in the special circumstances mentioned in
s. 54 of the Act, and subject to the provisions of the section.

The section extends to companies incorporated under
the Companies Acts the powers usually granted by private
Acts of Parliament to statutory undertakings, e.g. railway
companies, of paying out of capital interest on paid-up capital
during the unprofitable period of construction of works. The
section only permits interest to be paid on shares which are
issued to provide money for the construction of works or
buildings, or the provision of plant, ‘which cannot be
made profitable for a lengthened period.” It seems likely
that the Courts will not be troubled with decisions as to
what constitutes ‘a lengthened period’ in each case, seeing
that the previous sanction of the Board of Trade is required
to any such payment of interest as the section allows. So
far as the company is concerned, all that it can do is to take
care (1) that the shares are issued solely for the purpose
of defraying expenses of the kind specified; (2) that the articles
are, if necessary, altered, or a special resolution passed, to
authorise the payment; (3) to apply to the Board of Trade
for its sanction. If the Board of Trade grants its sanction,
the company (1) may charge such payments to capital as part
of the cost of construction; (2) must show in its accounts, from
time to time, the capital on which, and the rate at which,
interest has been paid during the period covered bv the
accounts.

The Board of Trade determines the period for which
interest may be paid, which must never extend beyond the
end of the half-year next after the half-year in which the
works, &c., are completed. No higher rate than 4 per cent.
or such other rate as may for the time being be prescribed
by Order in Council, can in any circumstances be paid. An
Order in Council of 17 December, 1929, prescribes that the
rate ‘shall in no case exceed 6 per cent. per annum.’

The power to declare a dividend can be vested by the
articles in the directors absolutely, but is usually vested
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