Unlawful dividends - repayment

The English High Court has recently held that no liability arises to repay unlawful dividends unless the member receiving the dividend knew or had reasonable grounds to believe that such payment was being made in contravention of the Companies Act 1985.  An insolvent company claimed repayment of dividends unlawfully paid to the defendants who were the only shareholders and directors of the company.  The liquidators of the company argued on its behalf that the dividends had not been paid from "profits available for the purpose" and therefore were in breach of the Companies Act.  The defendants claimed that the payments made to them were noted as dividends in the accounts on the advice of their accountants but in actual fact they had been taken as salary. The court held that the payments were dividends not salary.  However the court further held that while the defendants were aware that the company had made losses, they did not appreciate that a payment of a dividend in these circumstances was illegal.  A member can only be required to repay a dividend under the Act where they knew (or had reasonable grounds to believe) that the payment was being made in contravention of the Companies Act. Merely knowing the facts without realising what they signified was not enough.  Case: It's a Wrap (UK) Ltd (In Liquidation) v (1) Barbara Gula (2) Anthony Gula [2005]