Undistributable reserves meaning

Amounts within a company’s equity that cannot lawfully be paid to shareholders as dividends or otherwise returned to members. In UK company law this is a statutory concept used in the public company net assets test and is defined in Companies Act 2006, s.831. For that purpose, undistributable reserves comprise: the share premium account; the capital redemption reserve; the company’s accumulated unrealised profits (so far as not previously utilised by capitalisation) less its accumulated unrealised losses (so far as not previously written off); and any other reserve that legislation or the company’s articles prohibit from distribution. In practice this captures, for example, a revaluation reserve. Understanding undistributable reserves is essential when assessing dividend capacity, preparing distribution statements under Part 23 CA 2006, and managing capital maintenance alongside other shareholder returns (such as buy-backs, redemptions and reductions of capital). The CA 2006 regime applies consistently across England & Wales, Scotland and Northern Ireland. In Ireland, the Companies Act 2014 contains equivalent restrictions on distributions and a similar net assets constraint for PLCs; while terminology may differ, reserves such as share premium and capital redemption reserve are generally not available for distribution.