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15.11.2019

Dividend Payout Limitation Period

The November 2019 issue of magazine iFinanses published an article by PRIMUS DERLING Partner Zane Eglīte-Fogele and Junior Associate Kristers Zālītis on the Dividend Payout Limitation Period.

According to the Commercial Law, “Dividends which have not been taken out within 10 years revert to the company, except in cases when, pursuant to law, the statute of limitations is deemed to be discontinued or suspended. Interest is not paid on dividends, which have not been taken out in time, if this is due to the fault of the shareholder.”

The Ministry of Justice explains that this legal provision applies to cases where a dividend has not been withdrawn through the fault of the shareholder. The 10-year limitation period does not apply if the shareholder has waived the amount due.

If it has not been possible to pay out the dividend to the shareholder, the dividend, after the limitation period, is passed on to the company. The unpaid amount of money is treated as company’s income, and not retained earnings. Dividends may be transferred to the company before the expiry of the 10-year limitation period if the shareholder himself declares that he waives dividend. The limitation period begins to run on the day on which the creditor can bring a claim against the debtor.

Dividends are determined by a decision of the shareholders’ meeting. From the moment the decision is made, the dividend is the property of the shareholder. Usually, the right of the shareholder to claim the payment of distributed dividend arises at the moment of the decision of the shareholders’ meeting – the limitation period begins to run.

More than 10 years after the decision on the payment of dividends, the dividend may be owned by the shareholder – the limitation period may, in certain cases, be suspended or interrupted.

A reminder of the existence of a debt is sufficient to interrupt the limitation period.

The reminder may be in the form of a letter, fax or another written form and may be given orally. It must be communicated individually and personally to the debtor and must expressly state the willingness of the creditor to request performance of a particular obligation. On the day of the reminder, the limitation period begins to run again. In the event of a dispute, the shareholder should have evidence at his disposal that he has reminded the company of the debt.

The company is obliged to pay dividend without any reminder from the shareholder.  If 10 years have passed since the shareholder is entitled to claim the dividend and the shareholder has not reminded the company of its debt, then the distributed – unpaid dividends will pass to the company.

Read the full text in latvian of the article in the November issue of iFinanses.