Can an otherwise lawful dividend be a transaction defrauding creditors?

This appeal considered two principal questions.  First, can Section 423 IA 1986 (transactions defrauding creditors) apply to the payment of otherwise lawful dividends?  Second, when and in what circumstances does the duty arise for a director to have regard to the interests of creditors?

Two dividends totalling c.EUR580m had been paid at a time when the company had ceased to trade and when the company had a contingent liability, the value of which was unknown at the time.  The court at first instance held that only the second dividend had been paid with the purpose of putting assets beyond the reach of creditors, and could be clawed back pursuant to Section 423.

The Court of Appeal upheld that decision, ruling that:

1. A dividend is no different to any other transaction which is entered into for the purpose of putting assets beyond the reach of creditors, and Section 423 can therefore apply. The court reiterated that the specified purpose does not need to be the sole or even dominant purpose in order for a claim under Section 423 to succeed.
2. The duty upon a director to consider the interests of the company’s creditors arises “when the directors know or should know that the company is or is likely to become insolvent”.  LJ David Richards confirmed that in this context “likely” means “probable”.  The duty had not been engaged  in this case, precluding any claim for breach of duty while leaving in place the claim under Section 423.

BTI 2014 LLC v Sequana SA & Ors [2019] EWCA Civ 112