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

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

1. はじめに

新型コロナウイルス禍により業績が悪化した中小企業の資金繰りを支えた実質無利子・無担保融資（いわゆるゼロゼロ融資）が 2022 年 9 月末で終了した。コロナ禍における各種の危機対応については、企業の倒産を歴史的な低水準に抑えた一方で、慢性 的な経営不振企業を延命させているといった声もあるが、ともあれ出口に向かうこととなる。かかる出口を見据え、2022 年 3 月 4 日、中小企業の事業再生等に関する研究会より「中小企業の事業再生等に関するガイドライン」（以下「本ガイドライン」という。） が策定・公表され ¹²、同年 4 月 15 日より適用が開始されている。

This article is the China Chapter of Sporting Succession in Football, a publication by Sports and Policy Centre, print copy available at: http://www.sportslawandpolicycentre.com/

A. Applicable Regulation of the Member Association

Background

On 5 October 2022, the Supreme Court handed down its long-awaited judgment in BTI 2014 LLC v. Sequana S.A. [2022] UKSC 25 concerning the trigger point at which directors must have regard to the interests of creditors pursuant to s.172(3) of the Companies Act 2006 (the "creditors' interests duty").

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.

Following a long wait of 18 months, the Supreme Court has today confirmed that the appeal of the decision in BTI –v- Sequana is unanimously dismissed.

The key question that many of us have been waiting for the answer to is: Does the creditor duty set out in s172(3) of the Companies Act 2006 exist and if so, when is it engaged?

It is axiomatic – at least as a prima facie proposition – that insolvency is only concerned about assets which belong to the insolvent when the insolvency commences (or, as it is often said when a concursus creditorum is established on the commencement of insolvency). South African insolvency law respects property rights which have accrued under our law prior to the commencement of insolvency proceedings, including security interests such as mortgages, liens and cessions.

The Ontario Superior Court of Justice’s decision in Carillion Canada Inc. clarifies how the principles in Montréal (City) v. Deloitte Restructuring Inc. (Montréal) should be applied to contingent obligations that are only quantified after the debtor company files for creditor protection.

The Supreme Court’s decision in BTI v Sequana & Others represents the most significant ruling on the duties of directors of distressed companies of the past 30 years.

This Supreme Court decision considers the balancing exercise which directors are required to carry out between the respective interests of creditors and shareholders when a company is in financial distress.

This note summarises the key points from the ruling and the practical effect of this decision.