Last week, the Supreme Court of the United Kingdom released its judgment in BTI 2014 LLC v Sequana SA. 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.

Yesterday, 17 October 2022, Revenue announced a significant update to the Debt Warehousing Scheme (DWS). Under the DWS, taxpayers with deferred liabilities had until the end of 2022 (and for certain qualifying business, 30 April 2023) to either settle their outstanding liabilities (at 0% interest) or to establish a Phased Payment Arrangement with Revenue (at 3% interest). In light of the current challenging economic environment, Revenue have now extended this deadline to 1 May 2024.

On 27 July 2022, the European Union (Preventive Restructuring) Regulations 2022 (S.I. 380/2022) (the Regulations) amended the Irish Companies Act 2014 (the Act) by transposing certain requirements of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 (the Directive) not already provided for in Irish law.

This has resulted in a number of modifications to the examinership regime and, for the first time, a codification of directors' duties when companies are in the `zone of insolvency'.

The changes to the Examinership regime include:

The Insolvency and Bankruptcy Board of India (“IBBI”) notified the IBBI (Insolvency Resolution Process for Corporate Persons) (Fourth Amendment) Regulations, 2022 on September 16, 2022 (“Fourth Amendment”) and the IBBI (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2022 on September 20, 2022 (“Fifth Amendment”). The Fourth Amendment and the Fifth Amendment are collectively referred to as the “Amendments”). We have summarised the Amendments below.

The amendments follow the recent high profile decision in The Australian Sawmilling Company Pty Ltd (in liq) & Ors v EPA & Anor [2021] VSCA 294 (TASCO Judgment). Insolvency practitioners should be aware that the amendments are aimed at preventing liquidators from disclaiming liability for environmental clean-up costs.

TASCO Judgment

Since 1988, the ‘rule in West Mercia’ – so named after the West Mercia Safetywear v Dodd Court of Appeal case – has been the leading authority for when directors of financially stressed companies are subject to the so-called ‘creditor duty’, namely the duty to consider the interests of the company’s creditors.

In both jurisdictions the general consensus was that where a company is insolvent, the fiduciary duty of its directors to act in the interest of the company (Irish law), or in the way they consider, in good faith, would be most likely to promote the success of the company in the interests of its members as a whole (English law), altered such that directors were required to treat creditors' interests in priority to shareholders' interests. Directors must consider the interests of creditors as a whole, and not just the interests of any individual creditor or class of creditors.

Key takeaways for directors

A significant decision of the Supreme Court of the United Kingdom was released last week, BTI 2014 LLC v Sequana SA and others, confirming the existence of a duty owed to the company by its directors to consider the interests of the company's creditors when the company becomes insolvent or approaches insolvency.

As expressed by the Supreme Court, the so-called "creditor duty" reflects a sliding scale:

Lately, the global economic market has been tumultuousMajor changes such as inflation and interest rate hikes may cause individuals or legal entities to fall into the abyss of insolvency. According to the Consumer Debt Clearance Statute and the Bankruptcy Act, if a debtor is unable to repay his/her debts, he/she may clear his/her debts according to the rehabilitation or liquidation process set out by the Consumer Debt ClearanceStatute, or file an application for bankruptcy in accordance with the Bankruptcy Act. Both are procedures to help debtors clear their debts.

In this alert, we review an important UK Supreme Court decision, which confirms that the fiduciary duties of directors to act in good faith in the interests of the company should, where insolvency[1] is imminent or insolvent liquidation or administration is probable, be interpreted as including the interests of its creditors.