Clifford Chance

Directors' Liability for Unlawful Dividends

27 June 2019

When businesses fail it is not unusual for the blame game to start. Those responsible for its management are most likely to be in the firing line. Transactions that may have taken place years before any formal insolvency, may suddenly become subject to the close scrutiny of insolvency officeholders. Often with the benefit of hindsight, decisions taken years before are assessed to ascertain whether they have contributed to the failure of the business. For creditors, unwinding transactions may be the best hope they have of recovering what they are owed from the company.

On 19 June 2019 in the case Re Burnden Holdings (UK) Limited (in liquidation) the English court considered whether directors had overstepped the mark and breached their duties by paying a dividend and creating security. In addition to the breach of duty claims, the transactions were also challenged as defrauding creditors.

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