Shareholders versus Creditors – Who Wins?

This recent judgement on directors’ duties to creditors is an important case for company law, given the current uncertain economic climate in the UK.

The recent judgement of BTI 2014 LLC (Appellant) v Sequana SA and others (Respondents) offers  guidance when directors of a company owe a duty to take into account creditors interests (the ‘creditor duty’).

In this case, the Supreme Court confirmed that Directors do have duties towards their creditors however, the  creditor duty is not triggered until one of three circumstances applies:

• The company is actually Insolvent,  or is facing ‘imminent insolvency’ (i.e. insolvency is just around the corner an is going to happen) or the company is ‘bordering on’ insolvency; or
• Insolvent liquidation or administration is probable; or
• A transaction under consideration that would put the company in one of these two positions.

When one of the three circumstances becomes obvious, then the director must also consider its creditors’ interests on their list of worries.  Interestingly, there is a lack of content on the issue of whether a director ‘ought to’ have known insolvency was imminent and the judges have left this question open for future cases.

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Please note the above is for information purposes only and is intended to be a short summary.  It should not be treated as a comprehensive guide and should not be acted on without qualified legal advice.

Please note the above is for information purposes only and is intended to be a short summary. It should not be treated as a comprehensive guide and should not be acted on without qualified legal advice.