BTI 2014 LLC v Sequana SA
Directors must consider the interests of creditors when the company is insolvent or bordering on insolvency, or when an insolvent liquidation or administration is probable.
Facts
In 2009, the directors of a company, AWA, caused it to pay a dividend of about €135 million to its only shareholder, Sequana. At the time, AWA was solvent, but it had a long term contingent liability for the costs of cleaning up pollution in the Fox River in the United States, which created a real risk that it might become insolvent in the future. About ten years later, AWA went into insolvent administration. BTI, to which AWA's claims had been assigned, sued the directors for breach of duty, arguing that they should have considered the interests of creditors when paying the dividend.
Legal principle
The Supreme Court held that the directors were not liable. Lord Briggs and the other justices said that the duty to act in good faith in the interests of the company, under section 172 of the Companies Act 2006, is modified by the rule of law, preserved by section 172(3), that requires directors in certain circumstances to consider the interests of creditors. That rule applies when the company is insolvent or bordering on insolvency, or when an insolvent liquidation or administration is probable, but not merely when there is a real and not remote risk of insolvency, as there was when the dividend was paid. The weight to be given to creditors' interests increases as the company's financial difficulties become more serious.
Related cases on directors' duties: powers, judgment and care
- Bamford v Bamford [1970] Ch 212
- Re Barings plc (No 5) [1999] 1 BCLC 433
- Re City Equitable Fire Insurance Co Ltd [1925] Ch 407
- Re D'Jan of London Ltd [1994] 1 BCLC 561
- Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498
- Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71
- Hogg v Cramphorn Ltd [1967] Ch 254
- Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
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