The government’s monthly insolvency statistics for August 2022 present a concerning trend for companies hoping to weather the storm amid the current economic crisis. Largely driven by creditors’ voluntary liquidations, company insolvencies were 43% higher than the same period last year and 42% higher than in 2019 (pre-pandemic).

In a landmark judgment for company directors, the Supreme Court has clarified the scope of the so-called “Creditor Duty” and when this duty will be triggered, in the case of BTI 2014 LLC -v- Sequana SA and others.

This is particularly important in the current climate of financial instability and provides a ‘guiding light’ for directors on how to minimise the risk of personal claims against them where their company is, or may be, at risk of insolvency.

What is the “Creditor Duty”?

Recently on August 28, 2022, a three-judge bench of the Supreme Court of India delivered a judgement in R.K. Industries (Unit-II) LLP vs. H.R. Commercials Private Limited and Others[1], interpreting the provisions of IBC concerning the powers of the liquidator vis-à-vis mode of sale of assets by the liquidator.

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:

BTI 2014 LLC (Appellant) v Sequana SA and Others (Respondents)

Summary

The UK Supreme Court has, for the first time, considered the existence, content and engagement of an obligation on directors to take into account the interests of creditors when a company becomes, or is on the cusp of becoming, insolvent (otherwise known as the “creditor duty”).

On 5 October 2022, judgment was handed down by the Supreme Court in the case of BTI 2014 LLC v Sequana SA (Sequana) and others. The judgment is significant to company directors, insolvency practitioners and litigators as it clarifies how directors should comply with their duties to creditors in the context of insolvency.

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This week’s TGIF considers Campbell J’s recent decision in Blackcitrus Pty Ltd (in liquidation) v Parramatta Rugby Club Limited [2022] NSWSC 1329, refusing to order security for costs and determining whether to strike out defences based on alleged past breaches of NRL salary cap rules.

Key takeaways

In brief

The UK Supreme Court has handed down its long-awaited judgment in relation to the case of BTI 2014 LLC (Appellant) v. Sequana SA and others (Respondents) [2022] UKSC 25, concerning the duty of directors of a company registered under the Companies Act 2006 to consider (and act in accordance with) the interests of the company's creditors.

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The Third Circuit recently affirmed a bankruptcy court’s denial of a defendant’s motion to disqualify the plaintiff’s law firm in a large adversary proceeding, holding that it had not abused its discretion because the plaintiff law firm (W) had “complied with” American Bar Association Model Rule of Professional Conduct 1.10(a)(2). In re Maxus Energy Corp., 2022 WL 4113656, *4 (3d Cir. Sept. 9, 2022). According to the court, a lawyer (B) who “moved from” the defendant’s law firm “to the [plaintiff’s] firm” was not cause for W (the new firm) to be disqualified.