Reporting implications of COVID-19 - declaring dividends
On 11 March 2020 the World Health Organisation declared the spread of coronavirus (“Covid-19”) a global pandemic and the UK government has taken unprecedented steps to protect the economy, businesses and jobs during these very difficult times.
The resulting economic uncertainty and geopolitical impact will present the biggest test to a company’s business model, its longer-term viability and the ability to remain a going concern. This level of uncertainty is expected to continue for a considerable amount of time.
To navigate this uncertainty timely access to cash resources will be critical and strong short-term liquidity management is necessary.
A key effect of the uncertainty is to make longer term budgeting and forecasting extremely onerous and various scenarios must be planned for. Budgets and forecasts might need to be revisited daily as the actual impact of the pandemic unfolds.
Company directors are having to make unprecedented decisions concerning the workforce, the suspension of activities, and whether to use government assistance (e.g. loans, grants and the government job retention scheme).
Against this background there might be continued pressure from shareholders for a company to maintain its existing dividend policy, or otherwise return what might be considered excess cash. Directors may also be tempted to maintain market expectations.
Many listed companies have cancelled dividend payments and share buy backs, but some companies have continued to pay large dividends to shareholders, thus attracting press attention.
This information sheet focuses on fundamental issues that UK company directors must take into account before declaring dividends in the current economic environment.