Next has been criticised by a group of heavyweight investors who say the company failed to act on a warning that could have prevented it from breaking company law, forcing the retail group to hold an expensive shareholder meeting this week.
Next said last month it had paid dividends on four occasions without filing accounts at Companies House to show it had the money. The company called a special shareholder meeting for Wednesday at which shareholders will vote on a resolution to rectify the matter.
When it announced the error, Next said the matter was a historic “procedural oversight”. Analysts said it was embarrassing for Lord Wolfson, Next’s chief executive, who is known for his active management of dividends and shareholder returns.
The omissions concerned a special dividend paid in February 2014, an ordinary dividend paid in January 2015 and two special dividends paid in February and November 2015.
Next’s chairman, John Barton, the finance director and audit committee chairman will be there to face any shareholders who attend. Pirc, the shareholder advisory group, believes the cost of the meeting should be borne by Next’s directors, and not the shareholders.
It has emerged that a group of 11 investors and shareholder groups wrote to Next and other FTSE 100 companies in October 2014 asking for clearer reporting of money that can be paid out to shareholders – known as distributable reserves.
The investors, which included the Universities Superannuation Scheme, Threadneedle and Royal London, told companies that without better information shareholders could not be sure a company was solvent.
Next replied to the investors’ letter but then made three dividend payments that infringed the 2006 Companies Act. Next had the reserves when it made the payments but it did not update its accounts with Companies House to show this was the case.
The fashion chain said that the shareholders’ letter and the shareholder meeting were about separate matters to do with its distributable reserves.
“The issue in question for this general meeting concerns the filing at Companies House of relevant accounts which demonstrate distributable reserves. The question that had been previously raised was around clarity of disclosure in accounts.”
But Natasha Landell-Mills, head of stewardship at Sarasin & Partners, who co-ordinated the group of shareholders, said Next was wrong to argue the matters were entirely separate.
She said: “I am not sure why they are distinguishing between their disclosures to investors in their accounts and the accounts they file at Companies House. Of course, it is important that accounts are filed at Companies House but the point is that distributable reserves must be visible to shareholders too.”
To hold the meeting, Next contacted its 12,000 shareholders and paid the investment bank UBS and Allen & Overy, one of Britain’s most expensive law firms, to advise it on the matter. The meeting will take place at Allen & Overy’s offices in the City instead of on the outskirts of Leicester, where the company holds its annual shareholder meetings.
Next has declined to say how much the meeting will cost but it told Pirc the total would be less than 0.1% of annual profit, which was £635,000 last year. A spokesman for Next said the figure was given as rough guidance and that the cost would be substantially less than half that amount.
Pirc’s data shows that seven companies on the main market of the stock exchange owned up to the same mistake as Next in the months before the retailer paid the last of the dividends in November 2015. The first was by the online bookmaker Betfair in August 2014, followed by Morrisons, Foxtons and Poundland.
Tim Bush, head of governance at Pirc, said Next may face questions about the matter at its annual general meeting in May. He said Next’s recent discovery of the oversight could mean other companies have not yet spotted similar errors.
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