Introduction

Today, the UK Supreme Court considered for the first time the existence, content and engagement of the so-called “creditor duty”: the alleged duty of a company’s directors to consider, or to act in accordance with, the interests of the company’s creditors when the company becomes insolvent, or when it approaches, or is at real risk of, insolvency.

1. Introduction 

The High Court in London gave judgment on Friday, 3 July 2020 on the relative ranking of over $10 billion of subordinated liabilities in the administrations of two entities in the Lehman Brothers group.

During the COVID-19 crisis, many companies are facing unexpected financial distress, and taking steps to stabilise their business and bolster their finances.

Many directors will not have experienced these issues before, and should be aware of how their duties are impacted when the company is in financial distress.

This guide has been prepared on the basis of Hong Kong law principles. Many of the principles will also be applicable to other common law jurisdictions.

How are companies responding to the current crisis?

The recent decisions in Re MF Global UK Ltd and Re Omni Trustees Ltd give conflicting views as to whether section 236 of the Insolvency Act 1986 has extra-territorial effect. In this article, we look at the reasoning in the two judgments and discuss a possible further argument for extra-territorial effect.

The conflicting rulings on section 236