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.

The Supreme Court's judgment in BTI v Sequana is long-awaited, and welcome. The court has confirmed that directors do have a common law creditors' duty, and that it works on a sliding scale basis.

Over the last two years, courtesy of a once-a-century pandemic, government-mandated business closures, nationwide stay-at-home orders, and—unprecedented—disruptions to the global supply chain have illuminated, previously unknown, vulnerabilities across a whole host of industries. Would anyone have seriously questioned the viability of office space two years ago? Now, inflation, in keeping with the recent chaos, may be upending the viability of another tried-and-tested institution: the supply contract.

The High Court has held that where companies have adopted the model articles without amendment, any sole director acting has the power to pass resolutions acting alone.

The long, long awaited Supreme Court Judgment in the Sequana case is finally here. Firstly, for those who may have forgotten what the Supreme Court was grappling with, the issue was 'whether the trigger for the directors’ duty to consider creditors is merely a real risk of, as opposed to a probability of or close proximity to, insolvency'. 

You’ve gotta admire the Debtor in In re Deirdre Ventura.

Debtor has been fighting to save a Bed and Breakfast business through bankruptcy: beginning in 2018 with a regular Chapter 11, and then struggling to get into Subchapter V.

Debtor’s is a you-can’t-make-this-stuff-up story of persistence through adversity.

Debtor has survived, for example, an inexplicably-bad appellate opinion refusing to allow Debtor’s Subchapter V election. The appellate opinion declares: