Progress Property Co Ltd v Moorgarth Group Ltd [2010] UKSC 55 is a UK company law case concerning the circumstances by which a transaction at an undervalue would be considered an unauthorised return of capital.

The Supreme Court again dismissed the appeal and held that the transaction was sound because even though it was an extremely bad bargain in hindsight, it was negotiated in good faith and at arm's length.

That is how it was put by Sir Owen Dixon CJ in Davis Investments Pty Ltd v Commissioner of Stamp Duties (New South Wales) (1958) 100 CLR 392, 406 (a case about a company reorganisation effected at book value in which the High Court of Australia were divided on what was ultimately an issue of construction on a stamp duty statute).

In the Court of Appeal Mummery LJ developed the deputy judge's line of thought into a more rounded conclusion (para 30): "In this case the deputy judge noted that it had been accepted by PPC that the sale was entered into in the belief on the part of the director, Mr Moore, that the agreed price was at market value.

In seeking to undermine that conclusion Mr Collings QC (for PPC) argued strenuously that an objective approach is called for.

The same general line is taken in a recent article by Dr Eva Micheler commenting on the Court of Appeal's decision, "Disguised Returns of Capital – An Arm's Length Approach," [2010] CLJ 151.

That calls for an investigation of all the relevant facts, which sometimes include the state of mind of the human beings who are orchestrating the corporate activity.

The same is true of a payment which is on analysis the equivalent of a dividend, such as the unusual cases (mentioned by Dr Micheler) of In re Walters' Deed of Guarantee [1933] Ch 321 (claim by guarantor of preference dividends) and Barclays Bank plc v British & Commonwealth Holdings plc [1996] 1 BCLC 1 (claim for damages for contractual breach of scheme for redemption of shares).

Where there is a challenge to the propriety of a director's remuneration the test is objective (Halt Garage), but probably subject in practice to what has been called, in a recent Scottish case, a "margin of appreciation": Clydebank Football Club Ltd v Steedman 2002 SLT 109, para 76 (discussed further below).

If a controlling shareholder simply treats a company as his own property, as the domineering master-builder did in In re George Newman & Co Ltd [1895] 1 Ch 674, his state of mind (and that of his fellow-directors) is irrelevant.

But either conclusion will depend on a realistic assessment of all the relevant facts, not simply a retrospective valuation exercise in isolation from all other inquiries.

In Aveling Barford there were suspicious factors, such as Dr Lee's surprising evidence that he was ignorant of the Humberts' valuation, and the dubious authenticity of the "overage" document.

The right approach is in my opinion well illustrated by the careful judgment of Lord Hamilton in Clydebank Football Club Ltd v Steedman 2002 SLT 109.

In para 79 Lord Hamilton said: "It is plain, in my view, that directors are liable only if it is established that in effecting the unlawful distribution they were in breach of their fiduciary duties (or possibly of contractual obligations, though that does not arise in the present case).