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

For section 238 of the Insolvency Act 1986, the relevant transaction is one which the insolvent company itself entered into. A dividend cannot be treated as part of a wider sale arrangement merely because it was commercially linked to it, where the company was not party to the sale.

The defence in section 238(5) requires reasonable grounds for believing that the company would benefit from the transaction, assessed objectively in all the prevailing circumstances. Group or shareholder benefit is insufficient. Consideration for a transaction must be given in exchange for it. However, on the restorative discretion under section 238(3), the court may consider benefits which were not consideration.

UKCS8, an insolvent company operating North Sea oil interests, declared a US$84.7 million dividend to its parent, RockRose, shortly before RockRose sold its membership interest in UKCS8 to FIOGC. The dividend extinguished a substantial intercompany receivable owed by RockRose to UKCS8. On the same day, RockRose also wrote off a pension-related debt owed by a different group company.

The claimants, having acquired the liquidators’ section 238 claim, contended that the dividend was a transaction at an undervalue. Dias J dismissed the claim, holding that the relevant transaction was the wider sale arrangement, that the pension write-off was consideration, and that the statutory defence applied: [2024] EWHC 3146 (Comm).

The appeal concerned the identification of the transaction, the scope of consideration, and whether there were reasonable grounds for believing that the dividend would benefit UKCS8.

1. Appeal allowed. Lady Justice Falk, with whom Lord Justice Newey and the Master of the Rolls agreed, held that the relevant section 238 transaction was the dividend declared by UKCS8. Section 238 requires both a transaction and that the company itself entered into it. UKCS8 was not party to the share sale agreement between RockRose and FIOGC. A commercial link between the dividend and that agreement could not convert the wider arrangement into UKCS8’s transaction.

2. The defence in section 238(5) was unavailable. The statutory conditions are cumulative. The inquiry under section 238(5)(b) must consider all relevant circumstances, but it asks whether there were reasonable grounds for believing that the company would benefit from the transaction. It does not ask whether its parent, shareholder or group would benefit. The dividend was not necessary to achieve the sale and served RockRose’s interest in avoiding payment of UKCS8’s receivable. There was no real consideration of whether the dividend benefited UKCS8.

3. The court rejected the argument that the business-purpose limb in section 238(5)(a) requires the transaction to be necessary for carrying on the company’s business. The statutory language contains no such requirement.

4. The pension write-off was not consideration for the dividend. There was no evidence that UKCS8 paid the dividend in return for, or as a quid pro quo for, the write-off. The full US$84.7 million was therefore the undervalue. The write-off could nevertheless be relevant on the broad restorative discretion in section 238(3), which seeks to restore the position that would have existed but for the transaction.

5. The issue of remedy under section 238(3) was remitted to the Commercial Court. Existing factual findings were not to be revisited, save to the limited extent identified in the court’s order.

• Court of Appeal (Civil Division): Allowed the appeal and remitted the section 238 remedy to the Commercial Court: [2025] EWCA Civ 1669.
• High Court (Commercial Court): Dias J dismissed the claims, including the claim under section 238 of the Insolvency Act 1986: [2024] EWHC 3146 (Comm).