There has been no shortage of distressed airlines over the last 2.5 years as the COVID-19 pandemic and its economic reverberations wreaked havoc across the aviation sector and travel industry alike. Virgin Atlantic Airlines, Norwegian Air, Garuda, Malaysia Airlines (its leasing wing MAB Leasing Limited), AirAsia X and SAS are just some of the airlines to have gone through, or are in the process of, debt restructurings or deployment of asset and liability management strategies.
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”.
This is an important update in the Australian corporate and insolvency law context because, in BTI 2014 LLC v Sequana SA and others [2022] UKSC 25, the UK Supreme Court (being the UK’s highest court) confirmed the existence of a duty owed by directors to creditors in certain circumstances (creditor duty). Under the common law and equity (together, general law), there is a gateway to applicability of the creditor duty in Australia.
A much-anticipated UK decision confirms directors' obligations to creditors, but changes little in practice
KEY POINTS
In this alert, we review an important UK Supreme Court decision, which confirms that the fiduciary duties of directors to act in good faith in the interests of the company should, where insolvency[1] is imminent or insolvent liquidation or administration is probable, be interpreted as including the interests of its creditors.
The United Kingdom Supreme Court (the “UKSC”) recently delivered its eagerly anticipated judgment in BTI 2014 LLC v Sequana SA and others[2022 UKSC 25] (“Sequana”). The reasoning in Sequanawill be highly persuasive in the Cayman Islands, as well as other common law jurisdictions.
Sequana is a helpful decision for at least the following reasons:
Howard Morris and Sonya Van de Graaff, Morrison & Foerster LLP and Katten Muchin Rosenman LLP
This is an extract from the third edition of GRR's The Art of the Ad Hoc. The whole publication is available here.
Scope of the chapter
This 2022 review provides an overview of recent Australian Restructuring and Insolvency activity along with the laws, their application and recent trends and development in restructuring and insolvency activity.
Chapters: