Introduction

On 19 December 2025, the Court of Appeal handed down its judgment in TAQA Bratani Ltd & Ors v Fujairah Oil and Gas UK LLC & Ors [2025] EWCA Civ 1669. This judgment provides important clarification and reinforcement on the application of section 238 of the Insolvency Act 1986 (the Act), and the scope of the statutory defence under sub-section 238(5) of the Act. 

This ruling has important consequences for both insolvency practitioners (when looking back at transactions post appointment and pursing claims) and company directors (when structuring their inter-company arrangements where there are long term liabilities or possible insolvency risk).

Sections 238 and 238(5) of the Act

Section 238 of the Act applies where a company at a relevant time enters a transaction before insolvency where the company gives away value or receives significantly less than it gives. Where a company does so it has entered a transaction at an undervalue and, the court can, upon application, make an order to reverse the transaction.

Even if a transaction is ultimately found to be a transaction at an undervalue, the court must not make an order if the statutory defence under sub-section 238(5) of the Act applies. The defence applies where the company can show the transaction was entered into in good faith, and for the purposes of carrying on its business, and there were reasonable grounds for believing the transaction would benefit the company.

Background and first instance decision

TAQA concerned an US$84 million dividend payment declared by UKCS8, a company with oil and gas interests in the North Sea, in favour of RockRose, its parent company. On the same day, RockRose sold its interest in UKCS8 to Fujairah Oil and Gas UK for US$1. It was understood as a “cash and debt-free” transfer, so in effect the dividend was arranged to clear the inter-company balance between the companies prior to completion of the sale to Fujairah Oil and Gas UK.

UKCS8 was subsequently wound up and placed into liquidation. The liquidators claimed that the dividend to RockRose was a transaction at undervalue within the meaning of section 238 of the Act.

At first instance, the transaction was found to be a transaction at undervalue, but the statutory defence under sub-section 238(5) of the Act applied.

Key points of Court of Appeal decision

What constitutes the relevant “transaction”?

The scope of the term relevant “transaction” was carefully considered by the Court of Appeal as its application at first instance related to a so-called “wider arrangement” by which UKCS8 was sold, rather than the dividend transaction alone.

The Court of Appeal emphasised that section 238 of the Act contains a requirement that there must be a “transaction” and it must be a transaction which the company itself entered. The only transaction UKCS8 entered was with its parent in making the dividend, not the transaction by which it was sold (that arrangement was between RockRose and Fujairah Oil and Gas). Accordingly, the only transaction capable of engaging section 238 of the Act was the dividend.

The Court of Appeal also found that although the sale transaction concerned UKCS8 as its subject matter, it was negotiated and concluded before the dividend was made and entered into without UKCS8 being a contracting party. It follows that section 238 of the Act does not permit the aggregation of transactions simply because they are commercially linked. What matters is what the insolvent company itself did.

The Court of Appeal rejected the first instance court’s reliance on Feakins v Department for Environment Food and Rural Affairs [2005] EWCA Civ 1513, [2007] BCC 54 to justify treating linked steps as one transaction. While Feakins supports a goal-directed approach, it only does so where the debtor itself enters the relevant arrangement and a mere factual or commercial link is not sufficient, otherwise that would dilute the statutory protection afforded to creditors. The dividend was ultimately regarded as an afterthought to address the intercompany receivable after the SPA had concluded, which did not convert the sale transaction and the subsequent dividend into one single transaction which UKCS8 itself had entered. 

The only asset divested by UKCS8 was the $84 million dividend payment; that was therefore the relevant transaction for the purposes of section 238 of the Act.

What is the scope of the statutory defence under sub-section 238(5) of the Act?

The scope of the statutory defence was also carefully considered by the Court of Appeal and errors in the first instance decision were identified.

Given the Court of Appeal held that the relevant transaction was the dividend not the “wider arrangement”, the first instance decision was accordingly fundamentally undermined because it evaluated whether the sale transaction was beneficial, rather than whether the dividend could be reasonably benefited UKCS8. In other words, it was looking at the transaction from the wrong premise.

The Court of Appeal stressed that the question of “benefit” must be considered from the perspective of the insolvent company itself (UKCS8), not from the perspective of its parent (RockRose), and therefore the first instance decision was wrong in treating benefits to RockRose as if they were benefits to UKCS8.

While the Court of Appeal acknowledged that sub-section 238(5)(b) of the Act should not be applied in an excessively distrustful way and that context matters, it found it inherently difficult to see how a transaction at an undervalue could ever be believed to benefit an insolvent company unless there is a clear justification. The impugned transaction here (the dividend), stripped UKCS8 of an US$84million receivable, conferred no identifiable benefit on UKCS8, only advantaged RockRose by relieving it of an intercompany liability and seemingly no consideration was given to UKCS8’s solvency or its creditors.

The Court of Appeal therefore found that the statutory defence was not ultimately available.

Conclusions

The Court of Appeal’s sharpened approach here re-confirms that directors cannot justify stripping value from an insolvent company by pointing to a group or sale benefits of a “wider arrangement”, that dividends by distressed companies are an inherent red flag, and if directors do seriously intend to rely on the statutory defence under section 238(5) in fighting transaction at undervalue claims then cogent company-level rationale will be essential.  

Liquidators bringing claims will be emboldened by the Court of Appeals approach and we can therefore expect to see increased scrutiny of these sorts of transactions to ensure the pari passu principle which fundamentally underpins insolvency law is respected (i.e., that creditors of the same class share rateably and equally in the insolvent estate).