Betfair falls foul of ICAEW dividend guidance

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Online betting company Betfair has admitted in its 2014 annual report that it mistakenly paid £80m worth of dividends to investors. 

In a note to the accounts, the company explained: "As a result of certain changes to the technical guidance issued by the ICAEW in October 2010, the company did not have sufficient distributable reserves to make those distributions and so they should not have been paid by the company to its shareholders," an explanatory note read.

This applied to £30m in respect of its 2011, 2012 and 2013 financial years.

In addition it had bought back £50m worth of shares in its 2012 financial year. These purchases weren't actually carried out, the report continued, due to Betfair not having the relevant reserves. 

Tax Research UK blogger Richard Murphy criticised Betfair's auditor, KPMG, for not spotting the issue sooner and for failing to uphold the legal interpretation of 'true and fair'.

"Right now we have an absurd situation where what the ICAEW says on the subject appears to have legal status and yet their members seem unaware of it.

"It’s an issue in need of urgent clarification. If KPMG were brought to book on it that might help. Then some issues would have to be resolved," Murphy wrote.

Betfair said it would take steps to regularise the issue and has entered into deed polls to discharge current or former shareholders of the company who received a dividend, or tendered shares under the company's programme of market purchases from any obligation to repay any amount to the company.

A special resolution has been proposed to cancel and extinguish the ordinary shares concerned. This will be dealt with at its next annual general meeting.

According to the ICAEW guidance on the Comapnies Act 2006: "The ability to pay dividends on preference shares is still determined by reference to the availability of distributable profits even if those dividends are reported as an expense in accordance with IFRSs."

Comments
carnmores's picture

i wonder what the    3 thanks

carnmores | | Permalink

odds on that were :-)

 

It does bring another light

The Limey | | Permalink

It does bring another light to all of the discussions here on dividends...

From what I can see it was just a typical group structure cock-up - the subsidiaries had profits but had not distributed them to the parent. Sloppy.

Realised Profits Need Legal Definition not IASB Discretion

Ian Sunderland | | Permalink

Without knowing the details of this case, it is quite possible that these payments were made out of realised profits as determined by the Companies Act while not being distributable profits as defined by ICAEW guidance.

Realised profits are not defined. Sec 853(4) CA 2006 simply states that realised profits or losses are whatever accounting standards determine them to be. That is no definition at all: a discretion abused by standard setters such that we now see some holding gains recognised as realised profits. There can be nothing truthful about that.

As for the ICAEW guidance on distributable profits, although commendable this professional guidance does not have the same reach as the law and of course has less authority. For the sake of the public interest, our legislators need to align a company's reported profit with its distributable profit. This is, after all, one of the figures most relevant to the members collectively as regards the decisions they are legally required to take as a body. The present focus on individual stakeholders / stakeholder groups obscures this distinction necessary for long-term stability in the public interest.

carnmores's picture

why would KPMG not comply

carnmores | | Permalink

with published guidance