The Supreme Court, in a key judgment handed down on 5 October 2022 (BTI 2014 LLC v Sequana SA and others [2022] UKSC 25), has provided some important clarification around the scope of directors’ duties in the context of companies that are nearing insolvency.

Factual background

The High Court of England and Wales has recently provided welcome clarification around the nature of events of default under derivatives contracts governed by the ISDA Master Agreement, in particular in relation to whether an insolvency related event of default can be cured and so cease to be continuing. This brings to an end a long running debate around the extent to which, and for how long, a party can continue to rely on the condition precedent to payment contained in the ISDA framework documentation where the other party is subject to such an event of default.

Two years on from PCP Capital Partners LLP and another v. Barclays Bank Plc [2020] EWHC 1393 (Comm), the High Court has declined to extend the scope of what constitutes a waiver of legal professional privilege. The case of Henderson & Jones Limited v.

Introduction

On 5 October 2022, the UK Supreme Court delivered its long-awaited judgment in BTI 2014 LLC v. Sequana SA and others [2022] UKSC 25 ("Sequana Case") which concerns the question of the trigger point when directors must have regard to the interests of creditors ("Creditor Duty"). This case raised questions of considerable importance for Malaysian company law.

Over a decade after Lehman’s insolvency, the English High Court handed down a key judgement in Grant v FR Acquisitions Corporation (Europe) Ltd [1] on 11 October 2022. The judgement provides commentary on when certain Events of Default have occurred and are “continuing”.

Introduction

The Supreme Court recently considered the existence of the “creditor duty” and when this duty arises in the case of BTI v Sequana. The creditor duty is the duty for company directors to consider the interests of the company’s creditors when the company becomes insolvent or is at real risk of insolvency.

An insolvent estate is where someone dies and there is not enough money in their estate to pay off their debts. Essentially, it’s where the liabilities exceed the assets.

If an estate is insolvent, the beneficiaries under the Deceased’s Will, or anyone entitled under the intestacy rules, will not receive anything because the estate’s creditors will need to be paid off. This includes any gifts of value, such as jewellery, as these should be sold to help meet any liabilities that are due.

In brief

The UK Supreme Court has handed down its long-awaited judgment in relation to the case of BTI 2014 LLC (Appellant) v. Sequana SA and others (Respondents) [2022] UKSC 25, concerning the duty of directors of a company registered under the Companies Act 2006 to consider (and act in accordance with) the interests of the company’s creditors.

Contents

In what has been referred to as a “momentous decision for company law”, the Supreme Court recently considered whether, when a company is in the ‘insolvency zone’, its directors must have regard to the interests of its creditors in addition to, or instead of, its shareholders.