Companies – Insolvency – Directors Duties – Creditors
The UK Supreme Court has recently determined that where a company is insolvent, or bordering on insolvency, but is not faced with an inevitable insolvent liquidation or administration, the directors’ duty to act in the company’s interests must reflect the fact that both the shareholders and the creditors have an interest in the company’s affairs. Directors should have regard to the interests of the company’s general body of creditors, as well as to the interests of the general body of shareholders, and act accordingly.
Section 172 Companies Act 2006 stipulates a director’s legal duty to promote the success of the company, including the interests of creditors of the company, in certain circumstances. The Supreme Court noted that a creditor’s economic interest increases when a company is insolvent or nearing insolvency; at which point, a director should take that interest into account and avoid prejudicing it.
Directors of distressed companies should take early legal advice, and financial advice, to understand their duties and ensure compliance with them
Case: BTI 2014 LLC v Sequana SA and others [2022] UKSC 25