The Court of Appeal’s recent judgment in TAQA Bratani Limited (“TAQA”) & Others v Fujairah Oil & Gas UK LLC & Others [2025] EWCA Civ 1669 provides clarity on how the Court will approach the question of whether a transaction, is a transaction at an undervalue caught under s.238 of the Insolvency Act 1986 (“Act”). In overturning the High Court decision, the Court of Appeal has clarified the limits of the s.238 jurisdiction, the scope of the statutory ‘good faith’ defence pursuant to s.238(5) of the Act, and the circumstances in which surrounding commercial arrangements can (and cannot) be treated as consideration.

What this decision means for Officeholders and Litigators

The decision in TAQA Bratani serves as a helpful reminder to restructuring professionals and directors dealing with restructurings as to the dangers of focussing on the ‘big picture’ – dealing with the ‘wood’, at the expense of the ‘trees’ – and highlights:

  • Importance of identifying the real transaction:The Court will not attribute the terms of a wider commercial arrangement to a transaction where the relevant company was not a party to that arrangement. The focus should be on the specific arrangement to which the company is a party.
  • The s.238(5) defence remains tightly drawn: the ‘benefit’ for the purpose of any s.238(5) defence must be assessed from the company’s own standpoint, not the wider group’s or shareholders’.
  • Consideration requires an exchange: a benefit arising in the same commercial environment is not enough; it must be “for” the transaction.
  • Fact‑specific analysis continues to dominate: but the Court of Appeal has provided a clearer framework for identifying the relevant transaction and assessing the statutory defence.

Restructuring professionals and directors dealing with multi-entity restructurings may consider the following:

  • Perspective Analysis: whereas directors in multi-entity groups will often be directors across a number of entities, directors should not lose sight of the separate legal personality, creditors of, and duties to, each of those entities. Any transaction encompassing consideration from multiple entities should be accompanied by an analysis of the costs, risks, and benefits to each of those entities’ perspectives.
  • Appropriate Documentation: that analysis should be given contemporaneous and detailed consideration in appropriate documents, such as board minutes, to serve as a helpful reminder of the directors’ views of the overarching commercial environment at the time of the transaction for each relevant company. Noting that one of the key factors in deciding the unavailability of the ‘good faith’ defence in TAQA Bratani was the apparent failure to consider the benefit of the Dividend to UKCS8, directors may also consider preparation of composite sale memorandum between the relevant parties to document the linkage between the consideration given by each party to the overarching transaction.

For further understanding of how and why the Court of Appeal reached the conclusions it did in relation to s238, we set out the background and findings below.

Background

The claim in question arose out of the sale of one of the respondent companies, Fujairah Oil and Gas UK LLC (then known as RockRose UKCS8 LLC, herein “UKCS8”) by its then-shareholder, RockRose Energy Limited (“RockRose”), to UAE-incorporated Fujairah International Oil & Gas Corporation (“Purchaser”). Each of the relevant parties to the claim had business interests related to oil and gas extraction in the Brae area of the North Sea. UKCS8 was the holder of the principal interests of the RockRose group’s extraction interests, while TAQA and other parties to the litigation held similar interests for other parties.

Against a background of default by UKCS8 under various contractual obligations owed to TAQA and other parties under certain “Decommissioning Security Agreements”, in December 2020 RockRose completed a sale of its shareholding in UKCS8 to the Purchaser on terms documented in a Share Purchase Agreement entered into on 15 December 2020 (“SPA”). The SPA provided materially that:

  • the price payable by the Purchaser for RockRose’s shareholding in UKCS8 would be $1.00;
  • certain subsidiaries of UKCS8 would be carved-out of the transaction and be retained by the RockRose group;
  • the purchase by the Purchaser would be accompanied by a guarantee provided by the Purchaser to meet the obligations of UKCS8 under the Decommissioning Security Agreements; and
  • UKCS8 would waive its right to receive any amounts due to it from the seller group, i.e. RockRose.

Completion under the SPA took place on 24 December 2020, by which time two issues – which became the principal issues in this case – had come to the fore:

  • firstly, an intercompany balance of circa $84.7m was noted to be owing to UKCS8 by RockRose. In order to achieve the intended ‘debt‑free/cash‑free’ position at completion, it was agreed that UKCS8 would declare a dividend in the same amount in favour of its parent, RockRose (the “Dividend”). The Dividend would then be used to offset and extinguish the sums owed by RockRose to UKCS8. Consistent with that approach, the Dividend was declared on 24 December 2020, immediately prior to the sale of UKCS8 for US$1 to the Purchaser; and
  • secondly, whereas certain other liabilities were owed by UKCS8 to other RockRose group companies under intra group recharging arrangements, on the same day as the SPA completed, RockRose wrote off $53.7m that it had recorded as an intercompany receivable, reflecting an amount that RockRose had paid to discharge a pension buy-out liability (“Write-Off”).

Following completion of the sale, the claimants presented a winding up petition in the High Court on 16 December 2022 and UKCS8 was compulsorily wound up on 8 February 2023, at which point the terms of the Dividend were impugned as transactions at an undervalue in accordance with s.238 of the Act.

The key issues before the Court of Appeal were therefore:

  1. Identifying the perimeter of the transaction: on the one hand, it was argued by the TAQA parties that the scope of the ‘transaction’ for the purpose of s.238 should be considered narrowly, considering in isolation the dividend; on the other however, it was argued by the RockRose parties that the Dividend was only a constituent element or a step in the course of a larger transaction, the scope of which encompassed all of the steps taken toward the disposal of UKCS8.
  • Determining the ‘good faith’ defence: noting that the RockRose parties had relied upon the defence set out in s.238(5) to the Act, how should that defence be applied resultant of the Court’s findings on the other questions before it?
  • Considering consideration: material to the quantification of any claim, to what extent should the Write-Off be treated as ‘consideration’ given under any transaction, and thus be credited against any sum found to be owing under s.238?

Key Findings

1. Identifying the transaction: focus on the company’s act, not the wider deal

In overturning the High Court’s findings on this point, the Court of Appeal sided with the TAQA parties’ narrow view of the scope of the transaction, noting that:

  • The term ‘transaction’ is defined with reference to s.436 of the Act as a gift, agreement, or arrangement, but is accompanied in s.238 of the Act by the requirement that such transaction be entered into by the company itself.
  • The only parties to the SPA were RockRose and the Purchaser; UKCS8 was not a party to the SPA. The only ‘transaction’ to which UKCS8 was a party was the Dividend itself, and it was from the perspective of UKCS8 which the exercise of identifying the ‘transaction’ was required to be undertaken. The Dividend was an “afterthought”, bolted on after the SPA was agreed, and used as a mechanism to deliver UKCS8 on a “debt free, cash free” basis.
  • The Court of Appeal clarified that, while each case would be fact specific, for the purposes of s.238 of the Act there must be not only a transaction but also a transaction that the company itself entered into. In this case the ‘transaction’ for the purpose of s.238 was the Dividend, and the Dividend alone.

Outcome: The Court of Appeal held that the Dividend was the only transaction for the purposes of s.238, and accordingly the declaration of the Dividend alone constituted the transaction at an undervalue.

2. The s.238(5) defence: a narrow, company-focussed test

Having reached the conclusion that the correct view to take of the ‘transaction’ was isolated to the issuance of the Dividend, the Court of Appeal turned to the defence under s.238(5) of the Act:

  • The defence under s.238(5) of the Act requires the company to have:
  • entered into the relevant transaction in good faith, and for the purpose of carrying on its business; and
  • reasonable grounds for believing the transaction would benefit the company.
  • Following on from its reasoning above that the relevant ‘transaction’ to which the above framework should be applied was the Dividend, the Court clarified that the correct approach was to ask whether there were reasonable grounds for believing that payment of the Dividend would benefit UKCS8; while surrounding circumstances were of relevance in the assessment, the question must be answered from the perspective of UKCS8, not any other entity.
  • With particular emphasis on the latter limb of the test, the Court found on the specific facts of the case that it was hard to see how the payment of the Dividend was considered to be of benefit to UKCS8, specifically noting that it did not appear that there was any real consideration given to the matter of the Dividend’s benefit to UKCS8 at all. The characterisation of the Dividend as a ‘necessary adjunct’ to the sale of the shares in UKCS8 represented an error in approach, which rather should have examined that the proposed benefit of the Dividend was to UKCS8.

Outcome: In light of the finding that only the Dividend constituted the relevant transaction, the defence was unavailable because it had not been assessed from UKCS8’s perspective and UKCS8 received no benefit from the Dividend.

3. Consideration must be “for” the transaction

  • Having already taken the view that the only ‘transaction’ entered into by UKCS8 for the purpose of s.238 was the issuance of the Dividend, the Court similarly rejected that the Write-Off was consideration paid for the Dividend.
  • In reaching that conclusion the Court cited (amongst other reasons) that the Write-Off was not referred to in the documentation surrounding the Dividend, and that it was not apparent from the documentation that there was any ‘quid pro quo’ in the Write-Off.
  • However, the Write-Off was considered as relevant to the issue of remedy in line with the Court’s broad discretion under s.238(3) to make “such order as it thinks fit for restoring the position to what it would have been if the company had not entered into the transaction”. In exercising this discretion, the Court would have the power to take this into account – the extent of that account however was remitted back to the Commercial Court for determination.
  • Outcome: Although the Write‑Off did not amount to consideration for the Dividend, it remained relevant at the remedy stage, as the court’s broad discretion under s.238(3) allows it to consider factors necessary to restore the position “as it would have been”.

Concluding Comments

With the Supreme Court refusing permission to appeal, the Court of Appeal’s judgment now stands as clear authority on the operation of s.238 in this context, providing the anticipated certainty for officeholders and transactional parties.

A link to the judgment in the case of TAQA Bratani can be found here.