BTI 2014 LLC v Sequana SA and others

BTI 2014 LLC v Sequana SA and others

English law recognises a rule (the rule in West Mercia) that, when a company is insolvent or bordering on insolvency, directors' fiduciary duty to act in the interests of the company requires them to consider the interests of creditors as a whole. This rule is preserved by section 172(3) of the Companies Act 2006. However, the duty does not arise merely because there is a real and not remote risk of insolvency; it arises only when insolvency is imminent, probable, or unavoidable. In the present case, the company was solvent and not on the verge of insolvency at the time of the dividend, so the duty was not engaged and the appeal fails.

Parties
Appellant: BTI 2014 LLC; Respondent: Sequana SA; Respondent: Antoine Courteault; Respondent: Pierre Martinet; Respondent: Clive Mountford; Respondent: Martin Newell; Respondent: Selarl C Basse
Jurisdiction
England and Wales
Judgment Date
05 October 2022
Procedural Posture
Civil Appeal / Supreme Court Judgment
Outcome
Appeal dismissed
Legal Topics
Directors' Duties, Fiduciary Duty, Creditors' Interests, Insolvency, Shareholder Primacy, Dividends, Wrongful Trading
Company Law Insolvency Law Directors' Duties Fiduciary Duty Creditors' Interests Insolvency Shareholder Primacy Dividends +1 more

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Parties

BTI 2014 LLC

Appellant

Sequana SA

Respondent

Antoine Courteault

Respondent

Pierre Martinet

Respondent

Clive Mountford

Respondent

Martin Newell

Respondent

Selarl C Basse

Respondent

Procedural Posture

Civil Appeal / Supreme Court Judgment

Legal Issues

  1. 1 Does English law recognise a rule requiring directors to consider or act in the interests of creditors when a company is insolvent or nearing insolvency?
  2. 2 When does such a duty arise and what is its content?
  3. 3 Can the duty apply to otherwise lawful dividends?

Ratio Decidendi

English law recognises a rule (the rule in West Mercia) that, when a company is insolvent or bordering on insolvency, directors' fiduciary duty to act in the interests of the company requires them to consider the interests of creditors as a whole. This rule is preserved by section 172(3) of the Companies Act 2006. However, the duty does not arise merely because there is a real and not remote risk of insolvency; it arises only when insolvency is imminent, probable, or unavoidable. In the present case, the company was solvent and not on the verge of insolvency at the time of the dividend, so the duty was not engaged and the appeal fails.

Court Disposition

Appeal dismissed

Orders

  • The appeal is dismissed.