Key Supreme Court insolvency ruling clarifies stance on creditor duties

A much-anticipated Supreme Court judgment has confirmed the position as to when directors owe obligations to consider the interests of creditors, dismissing an appeal against the Court of Appeal decision in this case: BTI v Sequana [2022] UKSC 25.

This decision will be of interest to financial institutions involved in turnarounds and restructurings as a majority of the Supreme Court have:

• affirmed the existence of the duty to consider the interests of creditors;
• clarified that it is engaged where the directors know, or ought to know, that the company is insolvent or bordering on insolvency or that an insolvent liquidation or administration is probable;
• explained that where interests of creditors are engaged and diverge from those of shareholders:
  • liquidation is inevitable, creditors' interests are paramount; and
  • prior to that, there will be a fact sensitive balancing exercise to weigh up the competing interests by reference to the degree of distress.

For more information on the decision and its practical implications, see this briefing prepared by our Restructuring, Turnaround and Insolvency team.