Bairstow v Queens Moat Houses plc

Counsel argued that directors should be liable for unlawful distributions even when the company was solvent.

Robert Walker LJ held that the idea that investors were getting a windfall was wrong. However it may be possible that in suing the directors, an equitable contribution from shareholders could be payable. That argument was not, however, raised here.

45. In considering this windfall objection it is no doubt right to ignore the fact that the appellants are in practice unlikely, in view of the very large sums involved and the costs orders already made against them, to be able to meet even a small part of any judgments against them. It is not so easy to ignore the fact that the present shareholders in Queens Moat are probably a very different body of investors than those who received the unlawful dividends ten years ago. Some of those early investors may have cut their losses by selling their shares at the bottom of the market. Some of the present investors may have been astute enough or lucky enough to have bought their shares at the bottom of the market. Some may even have formed a view, in deciding to invest in Queens Moat, as to the prospects of a successful recovery on the counterclaim. These considerations put some flesh on the Salomon v Salomon point. They are matters which the court cannot easily take into account, however strong its instinct to achieve a fair result and avoid anything which resembles double recovery. Nevertheless it may be assumed that some of the present shareholders did receive and benefit from unlawful dividends paid between 1991 and 1993.

Sedley LJ concurred.

• UK company law