Case Summary - BTI 2014 LLC V Sequana SA And Others [2022] UKSC 25

Facts

This case determined issues of considerable importance in company law. The defendant, Sequana, was paid a dividend by a company of which Sequana was the only shareholder. At the time of the dividend, the company was solvent, and the payment was legitimate. However, the company had contingent liabilities that, if realised, raised the risk of insolvency.

Some years later, the contingent liabilities became a reality and the company became insolvent. A company’s assignee claimed that the dividend paid to Sequana breached the directors’ fiduciary duties to the company’s creditors.

Legal principles

Under s 172 of the Companies Act 2006, company directors have a duty to promote the company's success, sometimes including the interests of the company’s creditors.

While the duty under s 172 is one of good faith to promote the company’s interests for the benefit of its members, authorities began to incorporate a common law duty requiring the company to also consider and act in the interests of the company’s creditors.

Issues remained as to whether that duty existed and, if so, when it was applicable regarding the company’s risk of insolvency. A further consideration was how it sat alongside other principles of insolvency law, in particular wrongful trading.

Accordingly, in Sequana, the Supreme Court was asked to confirm that the directors’ fiduciary duty when a company faced insolvency was to act in the interests of its creditors or, if the duty existed, whether it only applied once insolvency had begun.

Decision

The court held that company directors had a fiduciary duty to protect the interests of the company’s creditors. However, it was not as simple as imposing an all-encompassing duty as the timing was relevant, although the Court’s statements on this aspect were only in passing.

Four of the five Justices considered the duty to be subject to timing and the company’s solvency. They stated that while the directors had a duty to the company’s members during the company’s solvency, once it became apparent that the company was facing insolvency, the duties shifted towards its creditors.

More recent cases

In Hunt v Jagtar Singh [2023] EWHC 1784 (Ch), the Chancery Division considered the scope of the creditor duty established in Sequana. It highlighted that in Hunt, the circumstances were different because the company in that case was insolvent throughout the relevant period, but in Sequana the company only faced the risk of insolvency.

Significance

The case established that directors of companies facing insolvency have a duty towards creditors when making decisions and can be held liable if they breach it.

However, there is a degree of subjectivity, as the directors’ view of a particular course and how it might affect the company's fortunes depend on the circumstances.