To work out whether a distribution can be made it is necessary to look at the ‘relevant accounts’, a term which is important because Companies Act 2006 (CA 2006) s836 provides that in determining whether a distribution has been made within the law, reference is to be made to the relevant items in the relevant accounts.

If a company proposes to make a distribution during its first accounting period or before any accounts have been prepared and circulated, initial accounts must be prepared. In all other cases the relevant accounts are the last annual accounts or interim accounts made up to a more recent date, if the proposed distribution cannot be justified by reference to the most recent annual accounts.