At the end of last year Domino's Pizza Group put out a statement saying it had ‘become aware of some issues in respect of the company's procedures for the payment of historic dividends, certain purchases of its own shares and assistance given to its employee benefit trust (the relevant distributions), which have resulted in an infringement of the Companies Act 2006 (or, where applicable, the Companies Act 1985).’

The statement went on to say that Domino’s has undertaken a thorough and detailed review of its reserves and is confident all issues have been identified and that the necessary procedural and administrative improvements have been implemented.

The company held a general meeting on 10 January 2017, where a special resolution was proposed putting all potentially affected parties in the position which they were intended to be in had the relevant distributions been made in accordance with the full requirements of the Act.

The shareholder information circulated in advance of the meeting stated: ‘At the time the company made each relevant distribution, it either did not have sufficient distributable profits and/or the requisite level of net assets (as applicable) or it had such sufficient distributable profits and/or such net assets (as applicable) but it had not prepared and filed with Companies House interim accounts showing this.

‘Accordingly, each of the relevant distributions were, regrettably, made by the company otherwise than in accordance with the Act. The total amount of the relevant distributions was approximately £84.7m.’

This was passed, and included shareholder approval of a proposed waiver of any claims which the company may have against its directors and shareholders in respect of the relevant distributions as these constituted related party transactions.

Dunelm made its admission of incorrect distributions in a letter to shareholders on 9 February, which referred to ‘a technical issue’ in respect of the payment of the final dividend paid in November 2015.

It said the company at all times had sufficient profits and other distributable reserves to pay the relevant distribution (as is evident from the financial statements for the 30 weeks ended 30 January 2016 that were filed with the registrar of companies on 26 February 2016), but such distributable reserves were not shown by the 2015 accounts at the times that the relevant distribution was declared or paid.

On 3 September 2015, before the relevant distribution was declared and paid, the profits of the company available for distribution as included in the 2015 accounts were increased by a payment of a dividend of £95m from a wholly-owned subsidiary of the company, Dunelm (Soft Furnishings) Ltd. As a consequence, the company’s distributable profits reserves were increased to £95.7m, being an amount sufficient to cover the relevant distribution of £32.4m.

Receipt of such intra-group dividend by the company was included in the 2015 accounts in a post balance sheet event note, shown as note 15 to the 2015 accounts. At the time, Dunelm’s board understood that that the 2015 accounts (including note 15) were sufficient to fulfil the procedural requirements of the Act.

However, the board has since taken further legal advice and has concluded that the 2015 accounts did not constitute ‘relevant accounts’ within the meaning in the Act and interim accounts demonstrating the distributable reserves of £95.7m as required by the Act should have been filed prior to the relevant distribution being made.

Dunelm has called a general meeting for 7 March to propose a resolution giving the board authority to enter the deeds of release designed to put all potentially affected parties so far as possible in the position in which they were always intended to be had the relevant distribution been made in accordance with the procedural requirements of the Act, and to address any related parties issues.

Report by Pat Sweet