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:

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.

On 5 October 2022, the Supreme Court delivered its long awaited judgment in BTI 2014 LLC V Sequana SA [2022] UKSC 25 dismissing an appeal by BTI. Lord Reed and Lady Arden each gave their own judgments which concurred, largely applying the same reasoning, with the judgment of Lord Briggs with whom Lord Kitchen and Lord Hodge agreed.

Welcome to the eighth edition of our quarterly disputes newsletter, which covers key developments in the dispute resolution world over the last three months or so.

In a new ruling, the UK Supreme Court concluded that the rule applies only when a company is "insolvent or bordering on insolvency".

On 5 October 2022, the UK Supreme Court handed down judgment in BTI 2014 LLC v. Sequana SA and others (Sequana)1. The case required the court to reconcile differing judicial pronouncements of the "creditors' interest rule" (the Rule) and consider the following questions:

The Supreme Court has unanimously dismissed the appeal of the decision in BTI –v- Sequana.

At a time when many companies are facing financial difficulties and directors are considering their legal duties, this long-awaited judgment has confirmed that directors have a 'creditor interest duty' when a company is insolvent or bordering on insolvency or an insolvent liquidation or administration is probable.  

Background

On 5 October 2022, the Supreme Court of the United Kingdom (UKSC) delivered a landmark judgment regarding directors’ duties in an insolvency context. In BTI 2014 LLC v Sequana S.A. [2022] UKSC 25, the UKSC considered the circumstances in which directors must have regard to the interests of creditors when exercising duties owed to the company and what obligations that imposes on directors.

The United Kingdom Supreme Court has just released an important insolvency judgment in BTI 2014 LLC v Sequana SA [2022] UKSC 25 (Sequana), which concerns when and the extent to which directors of a company must consider the interests of creditors.

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”?

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: