TAQA Bratani Limited & Ors v Fujairah Oil & Gas UK LLC & Ors

For the purposes of Insolvency Act 1986, s. 238, a dividend may form part of a wider transaction or arrangement. The court may assess the consideration and the company’s purpose by reference to that wider arrangement where the steps are inextricably linked. A statutory defence is available where the company acted in good faith, for the purpose of carrying on its business, and had reasonable objective grounds for believing that the transaction would benefit it. The transaction need not be necessary or solely directed to the company’s benefit. Insolvency is assessed objectively. For the cash-flow test, the company must be able to meet debts throughout the reasonably near future, not merely at its end. The claim under s. 423 fails where creditor prejudice was only a consequence, rather than a purpose, of the transaction.

The claimants sought relief under ss. 238 and 423 of the Insolvency Act 1986 and damages for unlawful means conspiracy. The claims concerned a dividend of approximately US$84 million declared by UKCS8 in favour of its parent immediately before UKCS8 was sold to a wholly state-owned entity for US$1.

The claimants alleged that the dividend extracted value from an insolvent company and formed part of an asset-stripping exercise designed to prejudice creditors. The defendants maintained that the sale and dividend were legitimate steps intended to break an operational deadlock, secure continued support for UKCS8 and enable its business to continue. The central issues were the relevant transaction, insolvency, the statutory defence under s. 238(5), purpose under s. 423 and intention for conspiracy.

1. Claims dismissed. The dividend was an undervalue transaction entered into at a relevant time. UKCS8 was balance-sheet insolvent when the dividend was declared, although the defendants established that it was not cash-flow insolvent because parental support and the Sheikh Zayed loan were sufficiently available.
2. The relevant transaction was the wider arrangement comprising the sale to FIOGC and its linked steps, including the dividend. It would be artificial to isolate the dividend where it was an afterthought required to implement a cash-and-debt-free sale. Under Insolvency Act 1986, s. 436, a transaction includes an arrangement. Benefits received by the company as part of that arrangement may constitute consideration.
3. The defendants established the defence under s. 238(5). They acted in good faith, for the purpose of carrying on UKCS8’s business, and had reasonable grounds for believing that the arrangement would benefit UKCS8. The first two requirements involved subjective states of mind; the third was objective. The transaction did not need to be necessary, exclusive to UKCS8’s interests or solely beneficial to that company.
4. Insolvency under s. 123 is objective. The cash-flow test extends to debts falling due in the reasonably near future, and the company must be able to meet its debts throughout the relevant period. The balance-sheet assessment was made at the transaction date and included established estimates of decommissioning liabilities.
5. The s. 423 claim failed because creditor prejudice was not a purpose of the arrangement. It was insufficient that prejudice might have been foreseen as a consequence. The conspiracy claim likewise failed because the claimants could not establish an intention to injure.
6. Other unresolved questions, including the appropriate remedy under s. 238 and the interaction between English conspiracy law and alleged breaches of foreign law, were left for a case in which they arose for decision.