BTI 2014 LLC v Sequana S.A. & Ors

Part 23 of the Companies Act 2006 tests a distribution against specified financial items in the relevant accounts. A solvency statement for a capital reduction requires directors actually to form the statutory opinions, taking contingent and prospective liabilities into account by a commercially realistic assessment; it does not require a worst-case calculation. A proper best-estimate provision can support the accounts, and immaterial disclosure defects do not themselves invalidate a distribution. The creditors’ interests duty arises only when insolvency is actual, imminent or sufficiently close to make a long-term view unrealistic. A dividend may nevertheless be a transaction at an undervalue under section 423 of the Insolvency Act 1986. The May dividend was made with the purpose of putting assets beyond a creditor’s reach; the December dividend was not.

Two claims concerned dividends paid by AWA, a wholly owned subsidiary of Sequana. AWA paid a €443 million dividend in December 2008 and a further €135 million dividend in May 2009, principally by setting the payments off against an intra-group receivable.

BTI, as assignee of AWA’s claims, alleged that the dividends contravened Part 23 of the Companies Act 2006, that the directors breached their fiduciary duties, and that the payments were transactions defrauding creditors. BAT separately claimed under section 423 of the Insolvency Act 1986, relying on its potential indemnity claim concerning environmental liabilities. The central issues were the validity of a capital reduction, the adequacy of provisions for contingent liabilities, the creditors’ interests duty, and the purpose of the May dividend.

1. Part 23. The December and May dividends did not contravene Part 23 of the Companies Act 2006. The relevant interim and annual accounts enabled a reasonable judgment to be made about the specified financial items and gave a true and fair view where required.
2. Capital reduction. Under section 643, the directors had to form the statutory opinions in fact. The test was a straightforward assessment of the company’s ability to pay its debts, taking contingent and prospective liabilities into account. It was neither a worst-case test nor a reference to the winding-up test in section 123 of the Insolvency Act 1986. Insurance recoveries could be considered. The absence of reasonable grounds affected the criminal offence under section 643(4), but did not itself invalidate the reduction. An error in the memorandum of capital did not invalidate the resolution where the memorandum remained sufficiently compliant, following the approach in De Courcy v Clement [1970] 1 Ch 693.
3. Accounts and provisions. The directors were entitled to use best estimates for remediation and natural-resource damages, supported by professional and expert work. The estimates used for both dividends were reasonable. Defects in narrative disclosure were immaterial to the legality of the distributions because Part 23 focused on specified financial items.
4. Creditors’ interests duty. The duty arises before actual insolvency only where the company is insolvent, near or doubtfully solvent, on the verge of insolvency, or in a condition where a long-term view is unrealistic and creditors’ prospects are at real risk. A proper provision accompanied by a risk that a future liability may exceed it was insufficient. AWA was not in that condition, so no fiduciary breach was established.
5. Section 423. A dividend can be a transaction at an undervalue under section 423 of the Insolvency Act 1986. The purpose is subjective and need not be dominant, but it must be real and substantial. The December dividend was not made with the statutory purpose. The May dividend was paid to remove the group’s exposure to the uncertain indemnity liability and thereby put assets beyond BAT’s reach or prejudice its interests. BAT’s claim therefore succeeded in principle as to the May dividend. The appropriate remedy was left for later determination.

not stated in the judgment.