The court offers guidance on reversing lawful dividend payments and when directors need to take into account creditors’ interests.
On 6 February 2019, the UK Court of Appeal published a judgment in BTI v. Sequana that will impact both creditors and directors of English companies.
The court decided that the payment of a dividend — despite its lawfulness under the Companies Act 2006 — can fall within the scope of section 423 of the Insolvency Act 1986, opening the payment up for challenge by a disgruntled creditor even outside of the realm of insolvency. When deciding to make a dividend payment, directors therefore ought to consider carefully not just the corporate statutory regime but also the Insolvency Act 1986 and common-law directors’ duties.
Furthermore, the ruling provides much-needed clarity on how close to insolvency a company needs to be before directors must consider creditors’ interests when fulfilling their duty to promote the success of the company, indicating the trigger of a so-called “duty shift”.
For an analysis of these rulings, see Client Alerts UK Court of Appeal: Creditors Can Seek to Reverse Lawful Dividend Payments and UK Court of Appeal: When to Trigger the Creditor Duty Shift.