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

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?

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.

BUSINESS RESTRUCTURING REVIEW VOL. 21 • NO. 5 SEPTEMBER–OCTOBER 2022 1 IN THIS ISSUE 1 Texas District Court: Bankruptcy Sale Break-Up Fee Satisfied Both Business Judgment Test and Administrative Expense Standard 2 Lawyer Spotlight: Gregory M.

In Short

The Situation: As businesses continue to grapple with realising the value of business and assets which are potentially impacted by sanctions related to Russia's war in Ukraine, an English company recently utilised an insolvency process to seek court approval for a proposed divestment.

A comprehensive review has begun into the effectiveness of Australia’s corporate insolvency laws in protecting and maximising value for the benefit of all interested parties and the economy. Undertaken by the Federal Government’s Parliamentary Joint Committee on Corporations and Financial Services, the review is seeking submissions by 30 November 2022.

The Supreme Court has refused permission for the case of Lock v Stanley to be appealed, meaning that the Court of Appeal’s approach to questions around the assignment by a liquidator of claims in the insolvent estate stands.

Most notably the Court of Appeal confirmed that a liquidator is under no duty to offer defendants the right to acquire the claims against them unless the failure to do so would be perverse.

In June 2021, we published an article (here)about the positive implications for insurers of our win in an unreported County Court case[1] in which the Deputy District Judge held that an insured’s insolvency did not have the effect of “pausing” the limitation clock from that date in relati

The struggles of failing marijuana businesses to wind down and pay creditors in an orderly fashion serve no one. Among the problems marijuana businesses face such as lack of access to banking and onerous taxation stemming from IRC 280E is the lack of access to bankruptcy proceedings.

A bankruptcy court ruled that a creditor didn’t need to seek derivative standing to sue a liquidating trustee. The creditor, himself a trustee of the debtor’s employee stock-option plan, had standing to sue without prior court permission because his suit wasn’t brought on behalf of the bankruptcy estate. In re Foods, Inc., Case No. 14-02689, Adv. Pro. No. 21-3022, 2022 Bankr. LEXIS 2331 (Bankr. S.D. Iowa Aug. 23, 2022).