10.2 Cash Payments by the Company 333Acts”.^20 The interpretation of the term distributions under the Companies Act 2006 there-
fore overlaps with the doctrine of ultra vires.^21 Under the Companies Act 2006, the term
distribution has basically been defined as “every description of distribution of a company’s
assets to its members, whether in cash or otherwise”;^22 this very open definition (a distribu-
tion is a distribution) has been complemented by listing exceptions which have been regu-
lated otherwise.^23
Decision-making. Decisions on the payment of dividends will be taken in two
stages. There will be a decision on the profits available for distribution. That deci-
sion will be followed by a decision on the payment of dividends. As rules on deci-
sion-making have not been harmonised at Community level, the provisions of
Member States’ national company laws apply. Typically, both decisions are con-
trolled by the board, although the general meeting may be given a veto right.
Under German law, the management board of an AG approves the annual financial state-
ments and submits them to the supervisory board with its proposal as to the appropriation
of the annual net profit.^24 The proposal sets forth what amounts of the annual net profit
should be paid out as dividends, but the net profit is determined only after certain amounts
have been transferred to capital reserves or carried forward to the next fiscal year.^25 Ac-
cording to the Aktiengesetz, the two statutory boards may not allocate more than one half
of the annual surplus to profit reserves, unless the articles of association provide other-
wise.^26 There are even other specific provisions dealing with the allocation of the annual
surplus to reserves.^27 Upon approval by the supervisory board,^28 the management board and
the supervisory board submit their combined proposal to the shareholders at the annual
general meeting. The general meeting decides on the distribution of profits,^29 but it is bound
by the proposal as regards the determination of the amount of annual net profits.^30 This
means that the management board and the supervisory board normally have the final say in
the dividend policy.^31
According to English company law, the division of power between directors and share-
holders will be settled by the company’s articles of association. The Companies Act 2006 is
(^20) Ultraframe (UK) Ltd v Fielding & [2003] EWCA Civ 1805, citing Aveling Barford
Limited v Perion Limited [1989] BCLC 626 at 631.
(^21) See also MacPherson v European Strategic Bureau Ltd [2000] EWCA Civ 248; Ferran
E, Principles of Corporate Finance Law. OUP, Oxford (2008) pp 243–244.
(^22) Section 829(1) of the Companies Act 2006.
(^23) Section 829(2) of the Companies Act 2006.
(^24) § 170 AktG; § 264 HGB.
(^25) § 158(1) AktG; §§ 275(2) Nr. 20 and 275(3) Nr. 19 HGB.
(^26) § 58(2) AktG.
(^27) See especially §§ 58(2a) and 58(3) AktG.
(^28) § 172 AktG.
(^29) § 119(1) AktG. See also § 174(1) AktG.
(^30) AktG § 174(1) AktG.
(^31) See also Roth GH, Die (Ohn-)Macht der Hauptversammlung. Oder: Unlautere Werbung
für Aktienrecht, ZIP 2003 pp 370–371. The wording of the German Corporate Govern-
ance Code is slightly misleading in this respect. See section 2.2.1 of the Code: “The
Management Board submits to the General Meeting the Annual Financial Statements
and the Consolidated Financial Statements. The General Meeting resolves on the appro-
priation of net income ...”