Unlawful Returns of Capital in the Context of Transactions at an Undervalue (Satyam Enterprises Ltd v Burton and another)

06 MAR 2023

Distributions are known as every description of distribution of a company’s assets to its members, whether in cash or otherwise. Distributions allow company members to withdraw value from the company and they can take a variety of forms for example, they can be by way of gifts or charitable donations and dividends. Directors can be held to be in breach of their fiduciary duty should they take advantage and distribute value out of the company either in excess or at undervalue.

The case of Satyam Enterprise Ltd v Burton and another [2022] All ER (D) 23 August 2022 involved a transfer of properties between two companies which had the same director and shareholder. The Court had to consider whether the director was in breach of his directors’ duties because the consideration given for the sale of the properties was below the market value. There was a undervalue of £77,000.  The High Court held that the transaction was lawful because the defendant had intended to sell the properties at market rate and not extract value from the selling company. The ruling of this case was similar to the one given in the case of Progress Property Company Ltd v Moorgarth Group Ltd [2010] UKSC 55 where the Supreme Court held that the sale of the company assets was not unlawful as the director had genuine belief that the sale had been at market value. This case provides an example of the potential issues that a director may face when making distributions that are either in excess or under the market value.

More generally, the two basic requirements which need to be fulfilled when making a distribution are that the company must have profits available to make the distribution and secondly the distribution must be justified by reference to the relevant company accounts.

Safeguards are in place for distributions to protect the company’s creditors rather than the shareholders. The rationale is that if directors are allowed to make any form of distribution no matter the value, then this would ultimately compromise the potential creditors of the company as shareholders would have the unrestricted power to remove company resources.

A distribution will be unlawful if it either is undervalued or it is more than the available distributable profits. In the case of a distribution in excess, it will only become unlawful at the point in which it exceeds the company’s actual available profit.

Directors could also be liable under the Insolvency Act 1986, where a director makes a distribution of dividends and at the time the company is insolvent and there are no genuine grounds to believe that the distribution would benefit the company and the company subsequently goes into liquidation.

In such circumstances, the liquidator may apply for an order requiring any current or previous director to be held liable for wrongful trading. This is if it appears that the director was aware or ought to have known that the company was heading for insolvency.

To avoid being liable for undervaluing assets directors should obtain consent and approval prior to the transfer or sale of a business asset. There should be a professional valuation of the asset to ensure that the accurate price and value is given.

In regard to dividends, directors should not make any dividend payments unless they have up to date and accurate profit figures on which to base the authorisation on. This evidence needs to show that the company has sufficient available profits. If this is not the case, then no dividends should be paid.

While in the Satyam Enterprises case, the High Court held that there was no unlawful distribution and therefore no breach of the director’s fiduciary duty, what happens in cases where the judge holds that there have been unlawful distributions by a director?

In such a case, the director at fault will be in breach of their statutory and common law duties but they may also find themselves personally liable to repay the company for any shortfalls caused by the unlawful distribution. However, this is as extensive as it gets as the Company Act 2006 does not impose any criminal sanctions on the director.

The ruling in the Satyam Enterprise case provides guidance to directors that they will be in breach and may be held personally liable if they undervalue transactions. However, it should be stressed that transfers which are undervalue do not automatically mean that there has been an unlawful distribution of capital. In order to ascertain whether there has been a breach of directors’ duties there needs to also be evidence to show that the director had intention to undervalue. In regards, to dividends, a director cannot use the defence that they were unaware of the company accounts before issuing dividends, as it is part of their duties to be up to date with the company’s accounts. While there are no criminal ramifications for both, it is advisable that directors act accordingly and adhere to their duties to avoid any breach and personal liability, as breaches can also lead to a 15-year disqualification.

Yulia Barnes

Managing Partner

Yulia Barnes is our Managing Partner. She is an experienced solicitor and advises on a wide range of contentious and non-contentious matters for both private and corporate clients.


Experience Yulia started her legal career at a large international Magic Circle firm. She then became a partner at a regional law firm and headed a Dispute Resolution Department. She then moved in-house before starting her own Boutique practice, Barnes Law, with the aim of providing exclusive services to high net-worth individuals and privately-owned businesses. More details can be found on her LinkedIn profile.

Expertise Yulia and her team are widely recognised for their professional and practical approach to matters. She is committed to ensuring that her clients’ objectives are achieved in the most cost-effective way possible.

Approach Yulia has a wealth of experience working with businesses of all sizes: from large multinational corporations to start-ups. She has particular expertise in a hospitality industry, investment funds, private and corporate clients, and focuses on startups and technology-driven companies. Yulia brings the same level of attention to detail, professionalism and a personal touch to every case and client, and truly immerses herself in her clients’ businesses. She prides herself on her problem-solving, commercially astute approach and her track record of partnering with clients to help them achieve their strategic objectives.

Will Moran


Will joined Barnes Law as an Associate Solicitor in Spring 2023, shortly after qualifying in September 2022.

Will works mostly on real estate and corporate/commercial matters. Will enjoys providing advice on transactional matters.

Away from the office, Will can be found reading or playing golf. While he played rugby until university, and rowed throughout his degree, he now tends to watch both from the sidelines. During the winter he can also be found skiing.

Will plans to continue developing his legal skills and experience at Barnes Law, under the expertise and guidance provided by Yulia.


Mark Corran


Mark is an experienced solicitor whose practice areas include intellectual property (IP), IT, data protection and general commercial law.

Mark advises businesses of all sizes – from sole traders to corporations. Among his clients are: clothing and lifestyle brands, restaurants and food suppliers, IT companies, banks, hedge funds and venture capital firms, education providers, medical and pharmaceutical brands.

Outside of his practice, Mark also advises members of the Institute of Directors as part of its Directors’ Advisory Service.


Recent transactions
  • Prosecuting a UK trademark application on behalf of an education provider and representing them in related UK IPO opposition and revocation proceedings;
  • Advising a publisher and a delivery business on data protection matters, B2B and B2C Ts & Cs of sale, website and app Ts & Cs, all aspects of global brand protection;
  • Advising footwear brands, alternative asset managers and hedge funds on their global brand protection, including overcoming various refusals, representing them in opposition proceedings and settlement negotiations;
  • Representing a central bank in opposition proceedings before the UK IPO;
  • Advising a lifestyle brand concerning trademark clearance and protection, negotiations for a website/app development and maintenance agreement.

Ioulia Tatawat

Family Law Adviser

Ioulia has a solid background in family law and offers guidance, clarity, and support to clients during one of their most challenging times in their life.

She advises on all three pillars of separation: divorce, children matters and financial settlements. Ioulia is a member of Resolution and is keen to try to settle matters at early stages.

Ioulia is dedicated to assisting clients and navigating them through their legal matters with clarity and support.


Alex Reidy


Alex joined Barnes Law in September 2023 after finishing his master’s degree in law. Prior to joining Barnes Law, Alex worked in property litigation at Ashfords. Alex assists Yulia on a variety of both contentious and non-contentious matters.

Outside of the office, Alex enjoys reading and hiking. Prior to working in law, Alex was a competitive tennis player.

Alex continues to develop his skills in legal practice under Yulia’s guidance, he plans to sit the Solicitor’s Qualifying Exams (SQE) in 2024.



Mehves Selamoglu


Mehves joined Barnes Law in August 2023, right after graduating from Queen Mary, University of London (LLB Senior Status). As part of her qualification journey, Mehves is currently pursuing her Legal Practice Course (‘LPC’) at the University of Law. She also holds a degree in European Union Law from Maastricht University, Netherlands.

Mehves works closely with Yulia on a variety of contentions matters and also writes Barnes Law’s legal blogs, manages social media accounts and is responsible for marketing.

Outside of work and studies, she enjoys running, tennis and yoga.

Mehves is looking forward to developing her legal skills at Barnes Law.



Julia Podgornova

Investor Relationship Manager

Julia guides clients in making important business decisions based on comprehensive risk assessment and strategy. She supports investors in devising strategies designed to maximise each business’s potential from pre-seed to IPO.

Julia’s particular area of expertise are IT start-ups at different stages. Julia supports business through their fund-raising journey. As an Investor Relations Manager, Julia communicates with investors to facilitate a smooth round and legal part of each transaction.

In her free time Julia enjoys sailing, ballroom dancing, art exhibitions and travel.