In high stakes restructurings, directors can be under significant pressure from different parts of the capital structure to take (or refrain from taking) certain actions. It is critical that the board understands whether it owes duties to members or creditors (or both). For such an important issue, the law has previously been remarkably unclear.
On 1 March 2019 the Court of Appeal handed down judgment in First City Monument Bank Plc v Zumax Nigeria Ltd [2019] EWCA Civ 294, a decision which will provide welcome clarity to those engaged in international banking and the financing of international trade.
SUMMARY
The Court of Appeal of England and Wales (“CA”) made a significant ruling on two matters affecting the powers and duties of directors of English companies.
An old friend
It is little wonder why Andrew Tinkler’s removal from the Stobart Group (and subsequent court case) attracted so much media attention:
A recent English Court of Appeal judgment has resolved some doubts regarding the use of adjudication procedures in insolvency.
Last year the Technology and Construction Court (TCC) held that a company in liquidation cannot refer a dispute to adjudication in circumstances where there are claims by a company in liquidation and cross claims by the other party1.
Court confirms dividends can be transactions at an undervalue
The Court of Appeal has confirmed that a dividend paid by a company to its shareholders can constitute a transaction at an undervalue under insolvency law.
What happened?
At the initial hearing, the High Court found the dividend was caught by section 423 and was therefore invalid. Importantly, it said that a dividend could constitute a transaction at an undervalue. This was an important confirmation, and the High Court has since followed this approach (for example, in Dickinson v NAL Realisations (Staffordshire) Ltd).
A real, as opposed to remote, risk of insolvency is not necessarily enough for the duties of a board of directors to switch from being owed to its shareholders to being owed to its creditors.