When a Dividend Becomes a Debt: How Section 830, Burnden Holdings and Sequana Reframed Director Liability in 2026

A statutory test the register has never been able to verify

For nearly two decades, the lawfulness of a UK dividend has rested on a deceptively simple sentence. Section 830 of the Companies Act 2006 permits a distribution only out of "profits available for the purpose" — that is, accumulated realised profits not previously distributed or capitalised, less accumulated realised losses not previously written off in a reduction or reorganisation of capital.

The arithmetic is straightforward. The disclosure is not. For most of the 5.3 million private companies on the Companies House register, the accumulated-reserves figure that justifies a board's dividend has been buried behind a filleted balance sheet — the small-company option under section 444 to omit the profit and loss account from the public filing. Auditors, lenders and counterparties have spent a generation reasoning around that gap.

ECCTA's full-P&L mandate, signposted for the 2026-2027 transition window for small and micro entities, finally puts the underlying movement on the register. It does not, however, amend section 830 itself. What it changes is the audit trail — and with it the practical risk that a dividend paid in 2024 or 2025 turns into a section 847 clawback in 2027.

Three tests, three thresholds

Two parallel statutory tests govern UK distributions, with a third overlay for the AIM and Main Market segments. The reference points and the consequences of getting them wrong differ materially across the three.

The point most often missed is that "relevant accounts" must show profits are available "by reference to which" the distribution is justified — not at the date the dividend is paid, but on the figures last filed. Section 837(2) requires those accounts to have been properly prepared and to give a true and fair view. A qualified audit opinion on the realised-reserves figure has, since the 2008 commencement, been enough to vitiate the justification altogether.

For the segment of the register that sits above the April 2025 audit thresholds (£15m turnover, £7.5m balance-sheet total, 50 employees on a two-out-of-three basis), this is well-rehearsed territory. For the much larger small and micro segment — close to 99 per cent of the active register — the audit overlay has been absent for a generation. ECCTA does not add one. It simply makes the underlying numbers public.

Why the case-law tail keeps lengthening

Three appellate decisions between 2018 and 2024 have quietly hardened the consequences of getting section 830 wrong. The pattern across the three is consistent: the dividend was paid out of what looked, on the face of it, like distributable reserves; the accounts were not obviously defective at the time; and yet the recovery action arrived years later.

1. Burnden Holdings (UK) Ltd v Fielding [2018] UKSC 14 — the Supreme Court confirmed that an unlawful dividend received by a director-shareholder is property held on trust under s. 21(1)(b) of the Limitation Act 1980. The translation matters: there is no six-year limitation cut-off where the recipient was a fiduciary. The Burnden claim concerned a £12m demerger dividend paid in 2007; the proceedings survived a 2017 strike-out application and only reached merits hearing in 2019.
2. BTI 2014 LLC v Sequana SA [2022] UKSC 25 — the dividend itself was lawful on the relevant accounts. The directors were sued under s. 172(3) for breaching the so-called "creditor duty" by paying it at all. The Supreme Court declined to find liability on the facts but accepted the duty as part of UK directors' general duties, triggered once insolvency becomes "probable". The practical reading: a dividend can satisfy s. 830 in full and still found a director-misfeasance claim if the board ignored creditor exposure at the point of declaration.
3. Wright v Chappell [2024] EWHC 2548 (Ch) — Mr Justice Leech ordered the former BHS directors to pay approximately £133.5m on wrongful-trading and misfeasance grounds. The judgment treats pre-insolvency distributions as part of the misfeasance picture and sets a working first-instance benchmark for director quantum that simply did not exist before.

The cumulative effect is that the question "was the dividend lawful?" now answers only half the problem. The second half — "even if it was, should the board have paid it?" — sits inside the same misfeasance proceedings, draws on the same evidence and is governed by the same long limitation window.

The section 847 mechanic that most boards still under-cost

Section 847 holds a shareholder who knew, or had reasonable grounds to believe, a distribution was unlawful liable to repay it (or, for distributions in kind under s. 845, pay an equivalent sum). Three points are routinely missed in director briefings:

• The test is constructive knowledge, not actual dishonesty. A controlling shareholder who signs the accounts in their dual capacity as director cannot easily plead ignorance of what the accounts show. Boards of family-owned and PE-backed companies — where the shareholder register and the board overlap heavily — sit in the highest-risk segment of the register.
• The repayment is not a damages claim with discretion attached. It is a debt. A liquidator collecting under s. 847 does so without having to prove loss to the company, and without the proportionality analysis that would dilute a Companies Act 2006 s. 1157 relief application.
• The cause of action accrues to the company, not to the registrar. Companies House has no enforcement role in any of this — but the documents on which the claim is litigated all come from its register.

The fourth point is the one ECCTA changes. Filleted accounts let directors and their advisers argue, with some plausibility, that an external party could not have read distributable reserves off the public file. Once the small-company P&L is mandatory, that argument falls away for accounting periods commencing after the relevant ECCTA commencement order — currently signposted for the 2026-2027 small-company filing cycle.

What a 2026 board should do differently

The administrative compliance posture for a private company paying dividends has not moved in nineteen years. The disclosure background has. A board that wants the same protection in 2027 as it had in 2017 needs to tighten three things in turn.

• Interim accounts under s. 838. If the last annual accounts no longer show sufficient reserves — because losses have crystallised, or because a fair-value reserve has reversed — prepare a board-approved interim balance sheet that does. For a private company those interim accounts do not need to be filed at the registrar, but they must exist at the date of declaration and be in a form that would give a true and fair view if audited. The cost of preparing one is trivial against the cost of defending a clawback five years later.
• Realised-reserves working. ICAEW and ICAS Tech Release 02/17BL remains the operative guidance on what counts as a realised profit. The 2025 ICAEW restatement now treats certain expected-credit-loss adjustments as realised losses for s. 830 purposes — a change that bites particularly hard on group-treasury companies and intra-group loan portfolios. Boards relying on auditor sign-off should request the realised-reserves working separately from the audit opinion and minute its receipt.
• Solvency confirmation, not just liquidity. Sequana put the s. 172(3) creditor duty squarely into the boardroom. A minute that records "the company can pay its debts as they fall due" is no longer enough on its own. It needs to record that, even after the proposed distribution, the company will remain able to do so over a forward window that reflects its sector — twelve months in stable trading, materially longer where pension, decommissioning or environmental liabilities sit on a long tail.

The shape of the next litigation cycle

The other half of this trajectory was set out in our earlier coverage of the end of filleted accounts and the ECCTA full-P&L mandate. The framing there was disclosure quality; the framing here is director exposure. They are the same regulatory change viewed from opposite ends of the same boardroom. ECCTA chose to widen the audit trail without amending the underlying solvency tests, and the space between those two decisions is where the next generation of section 830 cases will be litigated.

For a register that still does not, in 2026, hold a single field labelled "distributable reserves", that gap matters more than any other accounts-filing reform of the decade.