In this post, Yeva Agayan, an associate in the Litigation and Arbitration team at CMS, previews a case BTI 2014 LLC v Sequana SA [2019] EWCA Civ 112 which is being heard by the UK Supreme Court this week and relates to a payment of a dividend. The Supreme Court will be asked to consider: (1) whether an otherwise lawful dividend may nevertheless in principle be a “transaction defrauding creditors” under Insolvency Act 1986, s 423 and (2) whether the trigger for the directors’ duty to consider creditors’ interests is merely a real risk of, as opposed to a probability of or close proximity to, insolvency.


The case relates to two dividends: (1) €443 million paid in December 2008 (“the December dividend”) and (2) €135 million paid in May 2009 (“the May dividend”) by subsidiary Arjo Wiggins Appleton Limited (“AWA”) to its parent company Sequana.

At the time the dividend was paid, AWA ceased its trading activity and had one material liability, the size of which was unclear. AWA was liable to indemnify BAT Industries plc (“BAT”) for the costs of a clean-up of a polluted river. BAT argued the payment of the dividends resulted in AWA having no money left to pay these costs. BAT assigned the claim to its corporate vehicle BTI 2014 LLC (“BTI”).

Procedural history

At first instance, lawfulness of both dividends was unsuccessfully challenged under Companies Act 2006, Pt 23 and was not subsequently appealed. The High Court judge, Rose J, also dismissed all the claims related to the December dividend and there was no appeal of this part of the decision.

In relation to the May dividend, BTI appealed against the decision that the dividend paid by AWA to Sequana was not paid in breach of the duty to have regard to the interests of the creditors. Sequana in turn appealed the decision that payment of a dividend is capable of being a transaction defrauding creditors.

Consequently, the Court of Appeal had to consider two issues: (1) whether s243 of the Insolvency Act 1986, is capable as a matter of law of applying to the otherwise lawful dividend and (2) when is the duty of the directors to have regard to the interests of creditors engaged and can it arise in the context of a lawful dividend payment.

On the first point, the Court of Appeal concluded that a lawful dividend can in principle still be challenged and dismissed Sequana’s appeal. The requirements of the Insolvency Act 1986, s 423 are (1) a transaction at an undervalue and (2) the purpose of which is to place assets beyond the reach of creditors. A transaction entered into at an undervalue such as a gift or a transaction for no consideration can be found to be a transaction defrauding creditors. The Court of Appeal concluded that a payment of a dividend can in principle amount to a ‘transaction’, as it does not have to be a bilateral activity and can include an activity where only one person is engaged. In relation to the purpose element of s 423, the Court of Appeal said it was a question of fact and the purpose need not be the only or dominant purpose. Therefore, the decision of the High Court that the purpose of the May dividend was to put assets beyond the reach of the creditor was upheld.

On the second point, the Court of Appeal concluded that even if a dividend is technically lawful, it can still mean that the directors are in breach of their duties arising under the Companies Act 2006, s 172 (3). The Companies Act 2006, s 172 (3) states that the duty to promote success of a company “has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company”. BTI argued “that directors owe a duty to consider the interest of creditors in any case where a proposal involves a real, as opposed to a remote, risk to creditors”. The Court of Appeal commented that there is no English authority in this area that involved a company which is not insolvent or close to insolvency and no English authority that would  state that the duty in question would be triggered by anything but the actual insolvency. Therefore, the duty would arise if directors knew or should have known that the company is or likely to be insolvent. ‘Likely’ was interpreted to mean ‘probable’ and based on the facts of the current case there was no breach of such duty.

The Court of Appeal refused permission to appeal this case further. However, in July 2019 permission to appeal to the Supreme Court was granted. The UK Supreme Court hearing is now listed for 4 and 5 May 2021.


The decision of the Court of Appeal was welcomed by many commentators as it clarified the application of the Insolvency Act, s 423 and provided guidance on the when the duty to consider interests of creditors is engaged. The decision means that the directors will need to carefully consider whether the dividend should be paid even through it is legal under the Companies Act 2006, Pt 23. However, it also indicates that the courts adopted a commercial approach in relation to the creditors’ interests duty as the insolvency would need to be probable for the duty to be triggered. It is, therefore, a highly anticipated hearing which will require the Supreme Court to balance the interests of the creditors with the interests of shareholders and promotion of the general success of the company which is at the risk of entering a twilight zone.