Cash Bonuses, Dividends Banned at U.K. Firms Getting Sunak Loans
The U.K. banned companies taking the biggest state-backed coronavirus loans from paying out dividends and cash bonuses after opposition parties insisted the program should be used to help firms weather the pandemic rather than enriching investors and executives.
Businesses taking out loans of 50 million pounds ($61 million) or more under the Coronavirus Large Business Interruption Loan Scheme will be subject to the conditions, the Treasury said Tuesday in a statement. Restrictions were also placed on senior corporate pay and share buybacks. At the same time, the maximum loan size was increased to 200 million pounds.
The conditions -- which apply for the period of the loan -- were also placed on loans of a year or more taken out from Tuesday under the Bank of England’s Coronavirus Corporate Financing Fund. The bans don’t apply if dividends or cash payments have previously been agreed. Business leaders broadly accepted the restrictions.
“Restraints on executive pay and dividends are a reasonable demand from government,” said Roger Barker, head of corporate governance at the Institute of Directors. “The purpose of these loans is to keep organizations afloat, and boards should be doing what they can to conserve cash in the business.”
To date, U.K. businesses have taken out more that 32 billion pounds in loans under the various programs to help corporate Britain through the coronavirus outbreak, which has brought swathes of the economy to a standstill.
Under the pay restrictions, companies taking out the loans can’t pay cash bonuses or increase total remuneration across senior management unless three conditions are met:
- The pay increases are declared before the loan is taken out
- They’re in keeping with the previous year’s trend
- They do not negatively impact the company’s ability to repay the loan
Even without restrictions imposed by the Treasury, listed British companies have been scrapping or cutting their dividends because of the pandemic. BT Group Plc said earlier this month it would eliminate its dividend for two years; Royal Dutch Shell Plc at the end of April cut its dividend for the first time since World War II, and the quintessentially British retailer Marks & Spencer Group Plc has also canceled its dividend.
©2020 Bloomberg L.P.