Substantial dividend declared by an insolvent company is a transaction at an undervalue

The appellants and UKCS8 (first respondent) were members of oil groups holding interests in the Brae oil field. UKCS8 had been acquired by RockRose (second respondent), which later agreed to sell its interest in UKCS8 to FIOGC under a share purchase agreement (SPA).

Shortly before completion on 24 December 2020, an intercompany receivable of $84.7 million owed by RockRose to UKCS8 was eliminated by UKCS8 declaring a dividend to RockRose (as sole member) in that amount. The SPA also provided for the transfer of UKCS9, the group’s personnel’s statutory employer, out of UKCS8.

The RockRose group had previously operated a $53.7 million defined benefit pension scheme which had been bought out by an insurer. RockRose settled the amount due and had recorded the sum as a receivable from UKCS9, later writing it off on 24 December 2020 (the pension write off). The respondents contended that this write off should be treated as consideration received by UKCS8, as UKCS8 would otherwise have been re charged that amount under a service agreement with UKCS9.

Following UKCS8’s failure to meet payment obligations under the SPA, the appellants invoked forfeiture provisions to assume UKCS8’s interest in the oil field. They issued proceedings under s.423, and UKCS8 was ultimately wound up.

The appellants then pursued a s.238 claim, asserting that the dividend constituted a transaction at an undervalue equal to the full $84.7 million, on the basis that no consideration had been provided.

The lower court concluded that the conditions in s.238(5), namely that there were reasonable grounds for believing that the transaction at an undervalue would benefit UKCS8, were satisfied. The Court of Appeal overturned this decision and concluded that:

1. The relevant transaction was the dividend alone, because UKCS8 had only entered into the dividend and was not a party to the SPA.
2. The pension write off didn't constitute consideration for the dividend, with the result that the entire USD $84.7 million dividend represented the undervalue. 
3. The statutory defence in s.238(5) wasn't available, as the dividend conferred no benefit on UKCS8 and served only RockRose’s interests. 

The appeal was allowed, and the matter remitted to the Commercial Court to determine the appropriate remedy under s.238(3).

TAQA Bratani Ltd v Fujairah Oil & Gas UK LLC [2025] EWCA Civ 1669

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