Satyam Enterprises Ltd v Burton: returns of capital by undervalue transactions

Satyam Enterprises Ltd v Burton: returns of capital by undervalue transactions


In Satyam Enterprises Ltd v Burton and another [2022] EWHC 1987 (Ch) the High Court held that where the sole director and shareholder of a company transferred properties to another company, of which he was also the sole director and shareholder, for less than market value there was no unlawful return of capital as the director did not know the transaction was at an undervalue or intend to extract value from the company.


Mr Burton was the sole shareholder and director of JVB5. Mr Burton held the shares in JVB5 on trust for Mr V Sharma. JVB5 was the legal owner of 12 flats (the “Properties”). Mr Burton was also the sole shareholder and director of JVB7. Mr Burton also held the shares in JVB7 on trust for Mr V Sharma. The Properties were sold by JVB5 to JVB7.


The question before the Court was whether the sale of the Properties was unlawful return of capital. To decide this this, the Court had to determine two issues.

  1. First, whether there was a factual return of capital (which, on the facts, depended on whether the Properties had been sold for less than market value).
  2. If so, the second question was whether the director had believed that it was a genuine arm’s length transaction or whether it had instead been an improper attempt to extract value (the latter would make it an unlawful return of capital).


When determining if there was a genuine transaction or an improper attempt to extract value, the Court held that it depends on the circumstances of the case and the director’s actual intentions. It is only when the director’s intentions are not clear that the Court can look at the circumstances objectively to determine the matter.

  1. Factual return of capital

JVB5 had filed dormant company accounts, so it was accepted that it did not have any distributable reserves. Accordingly, if any value was extracted from JVB5 it would have represented capital and not profits.

The Court valued the consideration provided at £1,258,190. The Court found that the Properties were actually worth £1,335,000. Therefore, the transfer was for approximately £77,000 below market value and so there was a factual return of capital.

  1. Did the director believe it was a genuine transaction?

The Court found that Mr Burton did not know the sale had been below market value. Furthermore, the purpose of the sale was not to extract value from JVB5, but to refinance a loan used to purchase the Properties initially (and, it transpired, perpetrate a mortgage fraud in the process).

The Court found that Mr Burton had formed an intention to transfer value from JVB5 to JVB7 and that Mr Burton believed it was a reasonable deal for JVB5. Accordingly there had been no unlawful return of capital.


In cases such as this it has long been established that the Court will look at the substance of the transaction, rather than the outside appearance. Evidence of an undervalue will not automatically indicate that there has been an unlawful distribution of capital.  Those who are seeking to challenge an intercompany transfer in circumstances such as these will need to adduce evidence of both a factual undervalue and of the director’s intentions in making the transfer. This could be quite difficult in the absence of contemporaneous documentary evidence (such as emails, memos or board minutes).