# Arrears > in relation to any Share, all arrears of any dividend or other sums payable in respect of that Share, whether or not earned or declared and irrespective **Term:** Arrears **Last updated:** 2026-07-29 ## Definition ## What Arrears Means in a Contract Arrears, in the context of shares, describes any dividend or other sum that ought to have been paid on a share but has not been. This is a broad concept: it captures amounts owed regardless of whether the dividend was ever formally declared by the board, and regardless of whether the company had sufficient available profits at the relevant time to make the payment. The obligation to pay does not disappear simply because the company lacked funds or never took the formal step of declaration. This definition matters because many share classes, particularly preference shares, carry rights to a fixed or preferential dividend that accumulates if unpaid. Arrears is the mechanism by which those accumulated, unpaid amounts are tracked and preserved for future payment, often ahead of other shareholders when funds eventually become available. The clause also extends beyond dividends to cover other sums payable in respect of the share, along with interest and any other amounts that attach to it. This ensures that arrears is not a narrow technical term limited to one type of payment but a comprehensive catch-all for outstanding obligations tied to that share. ## How Arrears Is Defined or Measured The measurement of arrears typically starts from the point at which a dividend or sum became due under the company's articles or the terms of the share, and continues to accrue for as long as it remains unpaid. Because the definition specifies that arrears exist whether or not the dividend was earned or declared, the calculation does not depend on a board resolution or on the company's profit and loss position at any given time. Interest is often added to the principal arrears amount, compounding or accruing at a specified rate until settlement. This means the total sum owed can grow substantially over time if a company experiences prolonged financial difficulty and repeatedly fails to pay dividends on preference or similar shares. - Unpaid dividends that were due but not paid - Other contractual sums attaching to the share - Accrued interest on those unpaid amounts - Any further sums the parties agree should be included Because these elements combine, arrears figures can become significant, and shareholders holding shares with cumulative dividend rights will often insist that arrears be settled in full before any distribution is made to other classes of shareholder. ## Where Arrears Appears in Agreements Arrears provisions are most commonly found in a company's articles of association and in shareholder-facing documents that describe the rights attached to preference shares or similar instruments. They also appear in transactional documents such as a [share subscription deed](https://www.genieai.co/en-us/template-type/share-subscription-deed), where an investor subscribing for shares needs clarity on what happens if dividends are missed, and in a [Share Purchase Agreement](https://www.genieai.co/en-us/template-type/share-purchase-agreement), where a buyer will want to understand any outstanding arrears attaching to shares being acquired before completion. Arrears clauses can also surface in restructuring contexts, including a [Deed of Company Arrangement](https://www.genieai.co/en-us/template-type/deed-of-company-arrangement), where creditors and shareholders negotiate how accumulated unpaid amounts will be treated as part of a broader settlement or compromise. Beyond corporate finance documents, the general concept of arrears, meaning sums that are overdue, appears in a wide range of commercial contracts across industries such as finance, real estate, and construction, wherever payments are made periodically and there is a risk of default or delay. ## Why the Exact Wording Matters The precise wording of an arrears definition determines whether unpaid amounts continue to accrue even when the company has no available profits, and whether interest is automatically added or requires separate agreement. Vague or incomplete drafting can leave shareholders uncertain about their entitlement, particularly when a company undergoes financial distress or seeks to restructure its share capital. Because arrears often rank ahead of ordinary dividends in a distribution waterfall, the scope of what counts as arrears, and how it interacts with the law governing the contract regarding distributable reserves, can materially affect the value shareholders ultimately receive. Ambiguity here can lead to disputes between different classes of shareholders. ## Drafting Considerations Drafters should specify clearly when a sum becomes part of arrears, whether interest applies and at what rate, and how arrears interacts with any subsequent capital reorganization or winding up. It is also worth addressing whether arrears must be paid before any new dividend can be declared on other share classes. Clear, consistent use of the arrears definition across the articles and any related transactional documents helps avoid inconsistent interpretations and reduces the risk of disputes when a company faces cash flow pressure. ## Context ### Relevant circumstances - When preference dividends remain unpaid and accrue against the shares - If cumulative dividends roll up regardless of profits available - Where exit waterfalls must include arrears in preferred amounts ### Relevant sectors - Finance - Investment - Legal Services ## Relevant contract types - [Share subscription deed](https://www.genieai.co/en-us/template-type/share-subscription-deed) - [Share Purchase Agreement](https://www.genieai.co/en-us/template-type/share-purchase-agreement) - [Deed of Company Arrangement](https://www.genieai.co/en-us/template-type/deed-of-company-arrangement) --- This is the Markdown representation of [https://www.genieai.co/en-us/define/arrears](https://www.genieai.co/en-us/define/arrears), provided for AI agents and crawlers. 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