In a landmark judgment for company directors, the Supreme Court has clarified the scope of the so-called “Creditor Duty” and when this duty will be triggered, in the case of BTI 2014 LLC -v- Sequana SA and others.

This is particularly important in the current climate of financial instability and provides a ‘guiding light’ for directors on how to minimise the risk of personal claims against them where their company is, or may be, at risk of insolvency.

What is the “Creditor Duty”?

On 17 June 2020, the much anticipated Judgment in the Supreme Court case of Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2020] was handed down.

This article analyses the key outcomes of the decision, however, in order to contextualise the Judgment we first provide an overview of the relevant background.

The Technology & Construction Court

Written by the construction team at Freeths LLP

Section 342A and the further associated provisions within the Insolvency Act 1986 (“the Act”) provide a Trustee in Bankruptcy with the power to apply to seek to recover pension contributions made whether by the bankrupt himself on his own behalf or by another on his behalf.

Before the Court can grant relief it has to be sure that the rights under the pension scheme are the fruits of the complained of contributions and further that the contributions have unfairly prejudiced the individual’s creditors (Section 342A (2)(a) and(b).

A recent case in the insolvency courts has seen the court considering the possibility of forcing a bankrupt pension holder to draw down funds to be used by their trustee in bankruptcy.

Time will tell whether this type of order will filter into financial settlements on divorce. There are already a number of options for dealing with pensions on divorce that I consider with my clients, particularly when creating bespoke and creative solutions for them. The ability to force someone to draw on their pension would have to be seen as a last resort but would be a tool worth having.