Anonymised Summary of the Opinion
Factual and Procedural Background
This appeal concerns an application under section 238 of the Insolvency Act 1986 ("s.238"). The court below (Judge Dias) dismissed a claim brought by the Claimant(s) (the appellants here) seeking relief under s.238 following a series of corporate steps in December 2020. The operating company at the centre of the dispute is referred to in the opinion as Company A. Company A had been acquired in February 2019 by Company B. In July 2020 Company B was itself acquired by Company D, controlled by an individual described in the opinion; the acquisition was implemented by a scheme of arrangement involving Company D's share acquisition of Company B.
Company A was the operator of an offshore complex and a participant in a joint venture with the Appellant. Decommissioning security arrangements required a cash payment by 15 December 2020 or alternative security by 1 December 2020. On 30 September 2020 Company A received a Provision Invoice of about US$110m and failed to provide alternative security or make the cash payment. On 15 December 2020, after an agreement in principle had been reached for Company B to sell Company A to Company C, a short share purchase agreement was completed under which Company C acquired Company B's membership interest in Company A for US$1.00, with various ancillary provisions. Clause 3.4 of that agreement recorded that, on completion, Company B and Company C agreed that Company A "shall waive the right to receive any amounts ... due to them from the Seller's Group." Nine days earlier the SPA had been agreed between Company B and Company C.
After the SPA was agreed but before completion, an intercompany receivable owed to Company A by Company B was identified (recorded in the judgment as approximately US$84.7m though Company D's team believed a lower figure). On the date of completion Company B, as sole member of Company A, signed a written consent approving a distribution by Company A equal to the receivable, thereby extinguishing the receivable (the "dividend"). On the same date Company B wrote off a separate intercompany amount relating to a pension buy-out liability (the "pension write-off").
The Appellant treated the dividend as causing loss to Company A's creditors and issued proceedings (including claims under s.423 and for unlawful means conspiracy). The Appellant presented a winding-up petition which resulted in Company A being wound up in February 2023; the liquidators assigned rights under s.238 to the Appellant and the pleadings were amended to include a s.238 claim. The trial took place over four weeks in October 2024. Judge Dias dismissed the s.238 claim, concluding that although a transaction at an undervalue occurred within the relevant period, it fell within the defence in s.238(5). The present court (a panel including Judge Newey and Judge Vos) heard the appeal and concluded that the appeal should be allowed and the matter remitted to the Commercial Court to determine remedy.
Legal Issues Presented
- What is the correct approach to identifying the "transaction" for the purposes of s.238 (whether the dividend alone was the relevant transaction or whether a wider arrangement should be treated as the transaction)?
- What may properly be treated as "consideration" for a transaction when determining the existence and extent of any undervalue under s.238(4)?
- What is the scope of the defence in s.238(5), and in particular whether it can be satisfied where (i) the declared transaction is part of a wider arrangement and (ii) the belief that the transaction would benefit the company is assessed by reference to the wider arrangement rather than the position of the company itself?
Arguments of the Parties
Appellant's Arguments
- The Appellant contended that the relevant "transaction" for s.238 purposes was the dividend declared by Company A and that the full amount of the dividend (approximately US$84.7m) constituted an undervalue because Company A received no consideration for that dividend.
- The Appellant argued that the court below erred in law in treating the "wider arrangement" (the sale of Company A by Company B to Company C and linked steps) as the relevant transaction for s.238 purposes.
- The Appellant further submitted that the court below erred in applying s.238(5), failing to assess whether a payment of the dividend could reasonably be believed to benefit Company A specifically, and erred in treating the pension write-off as consideration.
Defendant's Arguments
- The Defendants (including Company B and related parties) argued that the relevant transaction was properly to be regarded as the overall arrangement by which Company A was sold to Company C, including the linked steps (one of which was the declaration of the dividend), and that the dividend was an inextricable part of that wider arrangement.
- The Defendants maintained that benefits received as part of that wider arrangement (including the pension write-off) could amount to consideration so as to reduce the amount of any undervalue, and that, in any event, s.238(5) applied because the arrangements were entered into in good faith, for a business purpose, and there were reasonable grounds for believing that the arrangement (viewed in its context) would benefit Company A.
- The Defendants relied on contemporaneous commercial practice (described at trial) that sales were commonly negotiated on "cash free debt free" terms and submitted that the dividend was a necessary adjunct to achieve the sale on those terms.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| BTI 2014 LLC v Sequana SA [2019] EWCA Civ 112; [2019] 2 All ER 784 ("Sequana CA") |
Establishes that a dividend can be a "transaction" and may be treated as a transaction "on terms that provide for the company to receive no consideration" for s.423 (and by analogy s.238) purposes; acknowledges that a dividend can form part of an arrangement. |
The court accepted Sequana CA as authority that a dividend is capable of being a transaction, but applied the statutory requirement that the company itself must have "entered into" the transaction; concluded that Sequana CA does not automatically require treating the dividend as the sole transaction where the company did not enter into the wider agreement of sale. |
| Invest Bank PSC v El-Husseiny [2025] UKSC 4; [2025] 2 WLR 320 ("El-Husseiny") |
Discusses the background to s.423 and confirms that the concept of a transaction at an undervalue should be construed consistently; addresses subjective test under s.423(3). |
The court relied on El-Husseiny for the proposition that s.423 and s.238 should be construed consistently as to the concept of transaction, but emphasised differences between s.423(3) (subjective purpose test) and s.238(5) (which contains objective elements) when analysing the relevant defences. |
| Feakins v Department for Environment Food and Rural Affairs [2005] EWCA Civ 1513; [2007] BCC 54 ("Feakins") |
Illustrates that an arrangement entered into by a debtor may be the relevant "transaction" and that "transaction" can include arrangements; highlights need to identify what the debtor itself entered into. |
The court distinguished Feakins: it held that Feakins does not support treating merely linked transactions as a single transaction where the company itself did not enter into the wider arrangement; Feakins was not authority for treating mere linkage as sufficient. |
| Re Ovenden Colbert Printers [2013] EWCA Civ 1408; [2014] 1 BCLC 291 |
Explains that the company must itself have "entered into" the transaction; that "entered into" connotes participation by the company. |
The court cited this authority to support the principle that s.238 requires the company to have entered into the transaction and that this is a vital part of the composite test. |
| Phillips v Brewin Dolphin Bell Lawrie Ltd (Brewin Dolphin CA [1999] 1 WLR 2052; Brewin Dolphin HL [2001] UKHL 2; [2001] 1 WLR 143) |
Brewin Dolphin HL: distinguishes transaction and consideration; confirms that the transaction may be the share sale while the consideration can include collateral or ancillary agreements and that identification of consideration is a question of fact. |
The court relied on Brewin Dolphin HL to show that the transaction is what the company divested itself of and that the consideration is what the company bargained for; applied those principles to conclude the pension write-off was not consideration for Company A's dividend because there was no bargain by Company A exchanging the dividend for the pension write-off. |
| Credit Suisse Virtuoso SICAV-SIF v Softbank Group Corp [2025] EWHC 2631 (Ch) ("Credit Suisse") |
Provides guidance on identifying the "transaction" and endorses that identification is fact-specific whilst noting earlier appellate observations about transaction identification. |
The court cited Credit Suisse as supporting the proposition that identifying the "transaction" is fact-specific and must have regard to statutory objectives; used it to support the conclusion that the dividend was the transaction entered into by Company A. |
| Lord v Sinai Securities [2004] EWHC 1764 (Ch); [2005] 1 BCLC 295 |
Considered in context of summary disposal applications in s.238 claims; not authority for reading "necessary" into s.238(5). |
The court noted that Lord v Sinai was a summary application context and did not justify importing a "necessity" requirement into s.238(5); it was relied upon to reject the Appellant's proposed reading of s.238(5)(a). |
| Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1 |
Illustrates principle that a company's interests are to be considered separately from its shareholders/group; cited in Sequana CA. |
The court applied the Walker v Wimborne principle to emphasise that s.238(5)(b) must be assessed from the perspective of the company itself (Company A), not the parent or group. |
| Reid v Ramlort [2004] EWCA Civ 800; [2005] 1 BCLC 331 |
Explains the discretionary nature of s.238(3) and the broad range of considerations relevant to remedy. |
The court cited Reid v Ramlort when discussing the discretionary remedial powers under s.238(3) and the relevance of various factors (such as collateral steps) when determining restoration. |
Court's Reasoning and Analysis
The appellate court's analysis proceeded in stages focused on (a) the identification of the "transaction" under s.238, (b) the scope and application of the defence in s.238(5), and (c) whether the pension write-off constituted consideration.
1. Identification of the "transaction": The court observed that s.238 requires the company itself to have "entered into" a transaction at an undervalue. Citing Re Ovenden and related authorities, the court emphasised that the statutory notion of "entered into" requires the company to have been a party to or to have taken an act in relation to the transaction. Applying that principle to the facts, the court concluded that the only transaction Company A itself entered into on 24 December 2020 was the dividend (the distribution that extinguished the receivable). The share purchase agreement (SPA) was a contract between Company B and Company C and did not itself constitute a transaction entered into by Company A. Consequently, the appellate court concluded that the dividend — not the wider arrangement between Company B and Company C — was the proper subject of s.238 analysis in respect of Company A.
2. Scope of s.238(5): The court explained that s.238(5) contains cumulative requirements: (a) the company entered into the transaction in good faith and for the purpose of carrying on its business and (b) at the time there were reasonable grounds for believing that the transaction would benefit the company. The court emphasised that limb (b) is an objective test to be assessed from the perspective of the company itself (Company A), not from the perspective of the parent company, purchaser or other group companies. While the wider factual context may properly be considered when assessing whether reasonable grounds existed to believe that a transaction would benefit the company, that assessment must focus on whether there were reasonable grounds to believe the dividend itself would benefit Company A.
The court concluded that the judge below had erred in her approach by treating the dividend as an inextricable and necessary adjunct to the wider sale and by failing to assess whether the particular act of declaring the dividend could reasonably be believed to benefit Company A. The court rejected the judge's reliance on an asserted commercial necessity of achieving a "cash-free debt-free" sale as justifying the dividend from Company A's perspective, observing that clause 3.4 of the SPA (the intra-group waiver) was negotiated for the benefit of Company B and was not a contract to which Company A was a party. The court found that the dividend was instituted to achieve Company B's objective of avoiding "gifting" value to the purchaser and that there was no evidence Company A bargained to exchange the dividend for the pension write-off or other consideration that would render the dividend beneficial to Company A.
3. Consideration and the pension write-off: The court addressed whether the pension write-off constituted consideration for the dividend under s.238(4). It concluded that the pension write-off was not consideration "for" the dividend because Company A did not enter into any bargain in which the pension write-off was given in exchange for the dividend; there was no documentation or factual finding that Company A declared the dividend in return for the pension write-off. The court relied on the distinction drawn in Brewin Dolphin HL that the transaction is what the company divested itself of, while the consideration is what the company bargained to receive; where there is no bargain by the company linking two steps, they should not be treated as consideration for one another.
4. Remedy and discretion: The court emphasised that, having concluded the dividend was the transaction and that s.238(5) did not apply, the question of remedy under s.238(3) remained. Section 238(3) confers a broad discretion to restore the position as if the transaction had not been entered into. The court therefore remitted the matter to the Commercial Court to determine remedy, noting that the judge's findings of fact were not to be revisited except insofar as they were the subject of specific challenge reserved for consideration.
Holding and Implications
APPEAL ALLOWED
Holding:
- The appellate court allowed the appeal. It held that the relevant "transaction" for s.238 purposes, insofar as Company A was concerned, was the dividend declared on 24 December 2020, not the wider arrangement by which Company B sold Company A to Company C.
- The court held that the pension write-off was not consideration for the dividend; accordingly the undervalue amount is the full amount of the dividend (US$84.7m) rather than a reduced figure treated as offset by the pension write-off.
- The court further held that the defence in s.238(5) was not available on the correct analysis because the court below had failed to assess whether there were reasonable grounds for believing, from Company A's perspective, that the dividend would benefit Company A.
Implications / Consequences:
- The matter is remitted to the Commercial Court to determine remedy under s.238(3), with the appellate court directing that the judge's factual findings should not be revisited except where they were subject to the specific Ground 3 challenge preserved on appeal.
- The appellate court did not make a final order as to remedy; it emphasised the discretionary nature of s.238(3) and recognised that the pension write-off and other factors may be relevant to the exercise of that discretion even though they are not "consideration" for the dividend under s.238(4).
- The court noted that it was unnecessary to determine applications to admit new evidence on the appeal and that the Commercial Court on remittal should address what evidence is properly to be taken into account when determining remedy.
- No new general legal principle beyond the application of established authorities was established; the decision applies existing statute and precedent to the facts of this case and directs further proceedings on remedy.
This summary has been prepared strictly from the content of the provided opinion and anonymised in accordance with the instruction. No information has been added that was not present in the original text.