If you are a creditor of an insolvent company or a bankruptcy, Oliver Elliot can help you address your claim and concerns arising from the insolvency.
Varying Transactions After the Event
Unlawful dividends: Global Corporate Ltd v Hale  EWCA Civ 2618 highlighted a number of matters including but not limited to the suggestion that it is unlikely to be permissible to vary the substance of transactions after the event. Consider the following two paragraphs from the judgment:
“Whatever may be the legalities of such a process…”
“22. I have two difficulties with this analysis. The first is an evidential one. Although under examination by the judge Mr Hale did accept in the passages quoted above that the decision to declare the dividends was not, in the judge’s words, definitive, when one looks at this in the context of his evidence as a whole this means no more than that it was open to the accountants to recommend and arrange a different treatment for the payments if it subsequently transpired that they could not lawfully be paid as dividends. Whatever may be the legalities of such a process it does not mean that the payments, when made, were not declared as dividends or, as the judge put it, were not declared definitively or at all. On the contrary, the payments were expressly declared by the directors as interim dividends; were declared to HMRC as such; and were taxed accordingly. Their payment therefore had real legal consequences. In some previous years the accountants had advised that the dividend payments be treated as salary but, in relation to the payments we are concerned with, that never happened. The accountants, according to their letter, believed that the payments were lawful, and no steps were taken to adjust the arrangements retrospectively before the Company went into liquidation.”
“That cannot cure the illegality of the original payment.”
“23. My second difficulty with the judge’s analysis is that the payments were clearly distributions within the meaning of s.830 CA 2006 when they were made and that is the time when their legality must be tested. There was no evidence that Mr Hale and his co-director had service contracts to which these particular payments were attributable and they clearly chose to pay and receive the money to themselves as shareholders and not as remuneration for past services which would have been taxable as income under Schedule E. At the point of payment the monies were therefore gratuitous distributions from the Company’s assets which had the effect of increasing the deficit on its balance sheet. Section 830 is directed to distributions as and when they are made (“may only make”) and it is immaterial that a subsequent realisation that the distributions should not have been made would prompt their being treated as remuneration. That cannot cure the illegality of the original payment. The most it can do is to allow the monies to be notionally repaid and then re-applied in a way which does not contravene the provisions of s.830 and is otherwise a lawful application of the assets of the Company.”