The Supreme Court of the United Kingdom (“SC”) has recently handed down a decision in the case of BTI v Sequana, dealing with the powers and duties of company directors. The appeal was expected to be of considerable importance.
This alert is especially relevant to companies, and directors of companies, in financial distress, as well as creditors and insolvency practitioners.
Key Takeaways
On 5 October 2022, the UK Supreme Court delivered its judgment in the case of BTI 2014 LLC v Sequana SA & Ors [2022] UKSC 25. This judgment arose from an appeal brought by BTI 2014 LLC against a decision of the English Court of Appeal in 2019.
The Supreme Court has handed down its long-awaited judgment, which as Lord Reed noted, considered issues that go to the heart of our understanding of company law and are of considerable practical importance to the management of companies.
Background to the Appeal
Under Irish and UK law, company directors owe fiduciary duties to act in good faith in the interests of the company. The company's interests in this context usually means the collective best interests of the members. However, UK and Irish authorities have developed directors' common law duties, such that in cases of insolvency, directors have a duty to consider the interests of the company's creditors.
Bankruptcy & restructuring
The economies of the United States (U.S.) and Canada are closely intertwined. As operations expand across the border, so too do the complexities associated with carrying on business - particularly the insolvency of a company spanning both jurisdictions. As such, understanding how to navigate the complexities of Canadian insolvency regimes is essential to successfully doing business in the country.
1. Legislation and court system
On 5 October 2022, the Supreme Court handed down its decision in the case of BTI 2014 LLC v Sequana SA and others. This is the first time that the Supreme Court has addressed the questions of whether there is a duty owed to creditor where a company may be at risk of insolvency, and the point at which that duty is triggered.
The costs regime in insolvency litigation is outdated and not fit for purpose, especially when it comes to the clawback claims designed to allow officeholders to restore the insolvent estate when assets have been deliberately dissipated. Many such claims can become uneconomical to run, especially where recipients of dissipated assets have no desire to preserve them but every incentive to diminish them with their own costs. Often a sale or assignment is the last resort to seek justice against wrongdoers in such situations.
The much-anticipated UK Supreme Court decision in BTI 2014 LLC v Sequana SA & Ors was finally released, giving clarity to directors and insolvency practitioners about the existence, scope and engagement of the so-called “creditor duty”. A relatively recent development in English law, the creditor duty is in fact really a dormant creature of the existing directors’ fiduciary duties that awakens in an insolvency, or near insolvency, context.
Introduction
The court ruled that:
Insolvency Proceedings are commenced upon bankruptcy of a debtor. In simple terms, bankruptcy is inability of a corporate debtor to pay back its creditors. Insolvency and Bankruptcy Code, 2016 (“IBC”) governs insolvency proceedings in India. A corporate insolvency resolution process (“CIRP”) is a recovery mechanism for the creditors of the corporate debtor and the CIRP can be initiated under Section 7 & Section 9 of the IBC.
Recently, the Supreme Court of the United Kingdom released its judgment in BTI 2014 LLC v Sequana SA1. This marks the first occasion on which the nature, scope and content of directors' duties to creditors when a company is nearing insolvency (the "Creditor Duty") has been considered by the Supreme Court.