Section 161 | Meaning of “restricted right to dividends”

(1)For the purposes of condition D in section 160, a right to dividends carried by shares in a company is a “restricted right to dividends” if—

(a)the dividends represent no more than a reasonable commercial return on the new consideration received by the company in respect of the shares, and

(b)subsection (2), (3) or (4) applies.

(2)This subsection applies if—

(a)the dividends are of a fixed amount or are at a fixed percentage rate of the nominal value of the shares, and

(b)the company is not entitled, by virtue of any term subject to which the shares are issued or held, to reduce the amount of, or not to pay, any of the dividends.

(3)This subsection applies if—

(a)the dividends are of a fluctuating percentage rate of the nominal value of the shares, and

(b)the company is not entitled, by virtue of any term subject to which the shares are issued or held, to reduce the amount of, or not to pay, any of the dividends.

(4)This subsection applies if paragraph (a) of subsection (2) or (3) is met but paragraph (b) of that subsection is not met and—

(a)the company is only entitled to reduce the amount of, or not to pay, any of the dividends in special circumstances, or

(b)having regard to all the circumstances, it is reasonable to assume that the company is only likely to reduce the amount of, or not to pay, any of the dividends in special circumstances.

(5)For the purposes of subsection (3)(a) dividends are of a “fluctuating percentage rate” of the nominal value of shares if the rate fluctuates in accordance with—

(a)a standard published rate of interest,

(b)the retail prices index, or

(c)any other general index of prices similar to the retail prices index that is published by the government, or by an agent of the government, of the country or territory in whose currency the shares are denominated.

(6)For the purposes of subsection (4) a company reduces the amount of, or does not pay, dividends “in special circumstances” if—

(a)at the time the dividend is or would be payable, the company is in severe financial difficulties, or

(b)the company does so for the purpose of following a recommendation of a relevant regulatory body.

(7)The Treasury may by order specify circumstances in which a company is to be treated as in severe financial difficulties for the purposes of subsection (6)(a).

(8)In subsection (6)(b) “relevant regulatory body” means—

(a)in relation to a dividend paid by a company that is a PRA-authorised person for the purposes of the FISMA, the Prudential Regulation Authority,^F1

(aa)in relation to a dividend paid by a company that is authorised for the purposes of the FISMA but does not fall within paragraph (a), the Financial Conduct Authority, and^F1

(b)in relation to a dividend paid by any other company, a body discharging functions in relation to the company under the law of a country or territory outside the United Kingdom that correspond to functions discharged by the Financial Services Authority in relation to a company authorised as mentioned in paragraph (a).