Remuneration by way of dividend (Global Corporate Ltd v Hale)

Remuneration by way of dividend (Global Corporate Ltd v Hale)

What ability do liquidators have to recover dividends paid to owner-managers when the company is insolvent? Steven Fennell, barrister at Exchange Chambers, examines the answer in Global Corporate Ltd v Hale and says while the case might be one limited to its facts if it is followed in future cases involving more normal accounting methods, it may create real obstacles to liquidators seeking to recover monies from directors.

Original news

Global Corporate Ltd v Hale [2017] EWHC 2277 (Ch), [2017] All ER (D) 50 (Sep)

The Chancery Division ruled, in proceedings which arose out of the liquidation of a company, that payments made by the respondent director of the company did not amount to dividends and that sections 830 and 847 of the Companies Act 2006 (CA 2006) did not apply to them. The applicant company had purchased the claim under a deed of assignment executed by the liquidators of the company. The court, in dismissing the application for a declaration, held that the payments were not unlawful dividend payments—they did not amount to a transaction at an undervalue and/or a preference—and that the respondent was not liable for misfeasance, under CA 2006, s 212.

What were the issues in this case?

Powerstation UK Ltd (the company) traded as a vehicle tuning centre, with two directors and shareholders. Its financial difficulties began with the recession in 2008 and eventually led to its insolvent liquidation in 2015. The defendant director paid himself through a combination of salary and dividends on the company’s accountant’s advice. He took £1,383 per month in addition to his nominal salary, signing dividend tax forms each month. At the end of the financial year, the company’s accountant would decide whether there had in fact been sufficient profits and, when there were not, the shortfall would be declared as PAYE earnings and additional payments made to HMRC. This was not done for the final year of the company’s trading, when

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.