On 5 October 2022 the UK Supreme Court (UKSC) handed down its “momentous” decision in BTI 2014 LLC v Sequana SA and others1. The case addresses issues of ‘‘considerable practical importance to the management of companies’’, in particular directors’ duties during insolvency or the onset of insolvency.
In the recent decision of Somesh Choudhary v. Knight Riders Sports Private Limited & Ors., the National Company Law Appellate Tribunal (“NCLAT”), New Delhi has held that claims arising from the grant of an exclusive right and license to use intellectual property rights falls within the definition of “operational debt” under Section 5(21) of Insolvency and Bankruptcy Code, 2016 (“IBC”).
Background Facts
The Judgment of the Supreme Court in BTI 2014 LLC v Sequana SA was handed down on 5 October 2022.
The Supreme Court considered the circumstances in which company directors must exercise their duties under s.172 Companies Act 2006 (CA06) with regard to the interests of the creditors and affirmed the position reached by the Court of Appeal.
Comment
The UK High Court has ruled that the obligations of third-party guarantors are not affected by a part 26A restructuring plan being sanctioned in respect of the underlying obligations. This approach mirrors the way guarantees are dealt with in a part 26 scheme of arrangement.
The case of Oceanfill Ltd. v Nuffield Health Wellbeing Ltd & Cannons Group Limited examined whether a restructuring plan under part 26A of the Companies Act 2006 (the “Act”) had the effect of releasing liability arising under a third-party guarantee.
BTI 2014 LLC v Sequana SA and Others [2022] UKSC 25
In a judgment handed down yesterday the Supreme Court has affirmed that a so called “creditor duty” exists for directors such that in some circumstances company directors are required to act in accordance with, or to consider the interests of creditors. Those circumstances potentially arise hen a company is insolvent or where there is a “probability” of an insolvency. We explore below the “trigger” for such a test to apply and its implications.
The Supreme Court handed down its long-awaited judgment in BTI 2014 LLC v. Sequana S.A. [2022] UKSC 25 (Supreme Court - BTI v Sequana) concerning the fiduciary duty of directors to act in good faith in the interests of the company.
The long awaited Sequana Supreme Court judgment[1] has provided some welcome clarity around the duties of the directors of a company in the "twilight zone" – i.e. where the company is facing financial difficulties.
A recent Supreme Court decision serves as a reminder for directors to take specialist legal advice at an early stage to avoid potential liability
Managing a company’s business and making strategic and operational decisions is increasingly the subject of considerable internal and external pressures.
Summary
The Supreme Court held that when directors know, or ought to know, that the company is insolvent or bordering on insolvency, or that an insolvent liquidation or administration is probable, they must consider the interests of creditors, balancing them against the interests of shareholders where they may conflict. The greater the company’s financial difficulties, the more the directors should prioritise the interests of creditors.
Background
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.