Boards are under increasing pressure to provide comfort over their distributable reserves. This is not only driven by a desire to enable them to execute on strategic initiatives, such as deals, but also because this provides a further indication of the effective control over quality and integrity of financial statements as a whole. The area of distributions and how they are structured and accounted for is buried in rules and guidelines which can be difficult to navigate.
Our team are experts in accounting (IFRS and UK GAAP) and the UK distributable reserves framework. This expertise and our experience of working on a range of transactions allow us to design the optimal structure for your transaction, whether it be a return of value, M&A deal, or a listing/debt raise, factoring in the requirements for distributable reserves, the impact on entity and group accounts, and the interaction with tax and company law.
Distributable reserves is an often overlooked area in many transactions. There are many types of transaction which require distributable reserves in order to be implemented, e.g. the payment of dividends to shareholders, share buy-backs, demergers and intra-group transfers. Even if a transaction does not require distributable reserves itself, the accounting for it can still have an impact on the distributable reserves of the group, affecting its ability to return value to shareholders in the future. Outside of transactions, boards are also under increasing pressure to provide comfort over their distributable reserves as a further indication of the effective control over quality and integrity of financial statements as a whole.
Boards face unprecedented levels of scrutiny and shareholder action. Ensuring that shareholder value is managed, including through maintaining dividends and other returns to shareholders, is critical for the directors, but there are still high profile instances where lack of strategic planning for returns or failure to apply rules, lead to significant problems for companies. As regulators continue to review this area, boards must ensure they are in control of their distributable reserves
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