GLOBAL CORPORATE LIMITED V Hale; re Powerstation UK Ltd
Facts:
The Company operated a vehicle tuning business. There were two directors and shareholders. They
worked long hours. The directors received a salary of £456 each per month. They also each received
an additional £1,383 each per month. The directors signed tax vouches each month which indicated
these were interim dividends.
At the end of the tax year the accountants would adjust the final dividend between dividends and
salary depending upon the level of distributable reserves.
On previous occasions there had been insufficient distributable reserves and some of the dividend
had been adjusted to salary and PAYE declared and paid.
25 November 2015 Global went into CVL. The last audited accounts were to 30 April 2014. Dividends
had been declared between 1 June 2014 and CVL of £23,511.
The payments were challenged by the liquidator as:
i. Unlawful dividends
ii. Payments in breach of fiduciary duties
iii. Transactions at an undervalue
iv. Preferences
DECISION OF HHJ Matthews in the High Court
The misfeasance claim failed as the directors had a quantum meruit claim for their services, which
justified the payments. The judge rejected the undervalue and preference claims as the payments
were made in respect of valuable services provided to the Company.
COURT OF APPEAL
The failure to re-characterise the payments prior to CVL was of significance. Mr Hale had been in
person and “led” by the judge in cross examination. He had, however, at no time stated the
dividends were provisional. BUT, more importantly, the payments were clearly distributions in
accordance with s830 CA 2006 at the time they were made. Therefore, the payments could not be
recategorised after the event and so were illegal dividends. The appeal succeeded.
Quantum Meruit – this was rejected as a defence and/or set off as it would need to be re-
characterised as a payment for services lawfully made prior to the CVL. (or Approved by the board)
See PV Solar Solutions Ltd.
Comment
This case considerable concern when the decision of the High Court was handed down. However,
the rebuke to the trial judge and successful appeal reaffirm the long held position that directors take
the risk when paying dividends either without accounts to justify them; or at year end to wipe out
loan balances that such actions cannot be justified in the event of financial difficulties and
insolvency.
If you wish to discuss this case or any other insolvency related matters then please contact me on 01403 711869 or gary@playerslaw.co.uk