Dividend disputes and the non-payment of dividends 

In this guide, we explore the most common reasons why disputes over dividend payments arise, what steps you can take to prevent those issues, and the options available if a dispute does occur, including how to bring a claim.  

If you are currently facing a dividend dispute or need immediate advice, please do not hesitate to get in touch with our business dispute solicitors. We can act on your behalf, guide you through every stage of the process, and deliver practical, clear advice tailored to your situation. 

What common reasons lead to disputes over dividend payments? 

Dividends (interim, final and one-off) can only be paid if a company has made sufficient profits. But even if a company has made sufficient profits, there is no right to a dividend. There are plenty of valid commercial reasons to retain profits: to invest in new projects, shore up cash reserves or steer the company through economic headwinds, and directors have a duty to act in the best interests of the company. 

That said, most dividend disputes are less about the principle of paying dividends and more about the details: how much is paid, when it’s paid, or who makes the decision. These discussions can be particularly heated if the company has a track record of regular payments and suddenly things change, out of the blue. 

You might find yourself asking why last year’s dividend was higher, or why the payment that was expected this quarter has been postponed. Sometimes dividends are paid in the form of new shares or are issued to certain classes of shareholders but not to others, and this can raise eyebrows, especially if it is unexpected. 

Most often, problems come down to unclear communication or the absence of a clear written policy. When neither the articles of association, shareholders’ agreement or dividend policy set out specific rules, directors are left to use their judgement, and regular shareholders can feel left in the dark. If you have ever felt out of the loop or surprised by a dividend decision, you are not alone. 

We find disputes are much less likely when everyone is kept informed. Clear, accessible policies, preferably written into a well-drafted shareholders’ agreement, along with regular, open communication from the board, can prevent dividend disputes. 

Can failure to pay dividends be a sign of wider financial or legal troubles within a company? 

If your company skips or reduces a dividend, does that mean something is seriously wrong behind the scenes? Not always, but it is certainly worth asking questions.  

If the company’s been historically healthy and dividend payments suddenly stop, especially without a clear explanation, you are right to take a closer look. Some warning signs that might hint at deeper trouble include shrinking profits, rising debts, or frequent delays in paying suppliers. If you notice secrecy or evasiveness from management, or you are struggling to access business information you are entitled to, you should be concerned. 

Sometimes, persistent non-payment of dividends can mean something much more serious is going on, such as fraud. Directors can only declare dividends out of distributable profits, and paying dividends if these are not genuinely available is a breach of their statutory duties. If promises of dividends are regularly broken, and financial records do not seem to add up with what you are being told, do not hesitate to seek legal advice from a business dispute solicitor.  

What rights do minority shareholders have if a dividend is not paid? 

If you do not have a controlling stake in a business, it can sometimes feel as though major decisions, like whether a dividend gets paid, are out of your hands. It is true that UK company law leaves considerable discretion with the directors. That said, the law does protect minority shareholders from treatment that’s grossly unfair (e.g. excessive director remuneration when no dividends are paid to shareholders) or meant to shut them out. 

Where you suspect that a decision to withhold or cut dividends is not just sound financial management, but is actually part of a wider effort to put you at a disadvantage (or minority holders generally), you may have grounds for an unfair prejudice claim. If the court finds in your favour, it can order a range of remedies, from forcing a dividend payment to requiring the majority shareholder to buy out your shares for a fair market value.   

What documents or agreements govern how dividends are paid? 

When it comes to dividends, everything starts with the company's articles of association. This document outlines who can propose a dividend, how it is to be approved, and if different share classes have particular rights or restrictions. In many cases, directors are given the power to recommend and pay dividends, but sometimes shareholders get the final say, especially for “final” dividends. 

For greater certainty, shareholder agreements can set out more detailed rules such as minimum pay-outs, pay-out percentages, or circumstances where dividends must be paid. If you want added protection as a shareholder or want to avoid headaches if you are a director, having these promises set down in a legally binding agreement is worth its weight in gold. 

Finally, any board decisions about dividends should be carefully minuted too. Those minutes will be crucial evidence later, if anyone questions whether the directors acted within their powers or made decisions for proper reasons. 

Both articles and shareholder agreements are legally binding. Articles can generally only be changed by special resolution (typically needing at least 75% shareholder approval), while shareholder agreements usually require all parties’ consent for any amendment. You shouldn’t ever find directors “rewriting the rules” without going through the proper procedures and the law is on your side if that happens. 

Are there legal steps I can take if dividend payments have been withheld or reduced? 

If you believe your dividend has been unfairly withheld or cut, the first move is always to seek clarity. Ask your board in writing for the reasons behind the decision and review all relevant company documents to see if the directors’ actions stack up against your agreed rules. 

Should the answer still leave you unsatisfied, or you believe there’s been a breach of the rules or directors’ duties, there are several routes you could take. Many situations can be resolved through discussion or mediation, which can save money, time, and stress. This is especially true for owner-managed and family firms, where keeping relationships intact matters. 

If negotiation and mediation don’t result in a solution, then formal legal proceedings might be necessary. This involves gathering up the relevant paperwork, your articles, any shareholders’ agreement, board minutes, and correspondence, before instructing business dispute solicitors to begin your claim. 

If I win a dividend dispute in court, what remedies are available? 

If you succeed in a dividend dispute, the court can compel the company to pay the dividend you were due, and sometimes even additional compensation if you lost other financial opportunities as a result of the withhold. In cases where the unfair action is part of a broader problem, the court may go further, ordering a buy-out, changing the way future decisions are made, or even requiring changes to the company’s constitution.  

Winning a claim doesn’t automatically change future dividend policy, but companies rarely want a repeat performance. In our experience, a court decision is usually followed by clearer communication, tighter policies, and a renewed focus on fairness for all shareholders. 

Summary 

Disagreements about dividends are more common, and more manageable, than you might think. Most stem from mixed expectations, a lack of clear rules, or a breakdown in communication. At Harper James, we always recommend being proactive: make sure your articles and shareholder agreements are up to date and say exactly what you want them to. Encourage open conversations about the company’s performance and plans. 

If you find yourself in a dispute, try to work things out informally or through mediation first. If that doesn’t resolve matters, the law offers strong protection for shareholders willing to stand up for their rights but do remember that the best solutions usually involve collaboration rather than confrontation.