Ben Gold, partner in RPC’s professional and financial risk team, explains how a recent Supreme Court case (BTI v Sequana) confirms company directors owe a duty to creditors if the company nears balance sheet or cash flow insolvency.
This ‘creditor duty’ is of increasing significance as insolvencies rise.
A recent Court of Appeal decision held that receivers are statutorily obliged to discharge preferential costs from assets available after deducting costs and expenses of a receiverirst line
The issue
It is widely anticipated that the next twelve months could be a challenging period for many businesses in the UK and that there could be a significant rise in the number of companies in financial distress.
Where this is the case, the directors of those companies will need to be increasingly mindful of the duties they have to the company's creditors, as well as to its shareholders.
From investors to regulators, FTX Trading Ltd (FTX) filing for bankruptcy was unexpected by all. A catalyst for litigation and regulation over the years to come, this collapse will serve as a warning, particularly to cryptocurrency insurers.
What happened?
In this chapter of our Annual Insurance Review 2023, we look at the main developments in 2022 and expected issues in 2023 for restructuring and insolvency.
Key developments in 2022
Corporate insolvencies have been rising sharply in 2022 albeit against the backdrop of record low insolvency filings during the pandemic. By June, they had reached their highest quarterly level since 2009 and the depths of the global financial crisis.
The Irish High Court (Court) has pierced the corporate veil in Powers -v- Greymountain Management Ltd [In Liquidation] & Ors [2022] IEHC 599, to hold passive resident directors and non-resident shadow directors personally liable for funds lost to investors as a result of fraud.
The Facts
The High Court (Court) has appointed an inspector to investigate the affairs of a company following the first recorded application by a creditor, under Section 747 of the Companies Act 2014 (Act).
The Facts
The applicant, a creditor of WFS Forestry Ireland Limited (Company), and at least seventeen others, claimed that investments they made in the Company, in the form of loans and other advances, were not repaid when due.