Dividends and loan repayments in a construction insolvency—Evans v Jones

Dividends and loan repayments in a construction insolvency—Evans v Jones

What is the status of dividends and loan repayments in the context of insolvency following the decision in Evans v Jones? Simon Passfield of Guildhall Chambers, who represented the respondents in this case, says when considering the balance sheet position of a company for the purposes of a claim under section 238 or section 239 of the Insolvency Act 1986 (IA 1986), it is necessary to consider the commercial reality of the position.

Original news

Evans and another v Jones and another [2016] EWCA Civ 660, [2016] All ER (D) 36 (Jul)

The Court of Appeal, Civil Division, allowed the joint liquidators’ appeal against a judgment that had ruled on their application under IA 1986, s 239. The judge had erred in having taken into account, in assessing the solvency of the company, a dividend that had been paid to the defendant director/shareholders which had been shown during the course of the liquidation to have been an unlawful dividend.

What was the background to the appeal?

The respondents were the directors and shareholders of Rococo Developments Ltd (the company), a property development company. On 1 June 2010, the company paid a dividend of £75,000 to the respondents. Between 3 June 2010 and 18 March 2011, the company repaid various loans made by the respondents. On 21 April 2011, the company was placed into creditors’ voluntary liquidation.

Subsequently, the liquidator issued a claim:

  • to challenge the dividend as being unlawful pursuant to section 847 of the Companies Act 1986, and
  • to challenge the loan repayments as preferences pursuant to IA 1986, s 239

The parties instructed a single joint expert to prepare a report on the following issues:

  • whether the company had sufficient distributable reserves to justify the dividend, and
  • the solvency of the company at the time of each of the loan repayments

As regards (i), the expert held that the

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