When must directors start to consider the interests of creditors as a company approaches insolvency? (BTI 2014 LLC v Sequana SA & Ors)

When must directors start to consider the interests of creditors as a company approaches insolvency? (BTI 2014 LLC v Sequana SA & Ors)

The recent case of BTI 2014 LLC v Sequana SA & Ors considers the circumstances in which the directors of acompany are required to consider the interests of creditors and the extent to which the payment of adividend by acompany can be susceptible to challenge under section 423 of the Insolvency Act 1986 (IA 1986).

Original news

BTI 2014 LLC v Sequana SA & others, BAT Industries plc v Sequana SA and another [2016] EWHC 1686 (Ch)

What is the background to this case?

This complex case (and resulting lengthy judgment) centred on the payment of two interim dividends by acompany called Arjo Wiggins Appleton Limited (AWA). The claimants argued the accounts on which the directors relied were incorrect and did not give atrue and fair picture of the state of AWA's finances. The reason for this was AWA was liable to indemnify one of the claimants (BAT) in relation to historic environmental liabilities which resulted in aprovision being included for anumber of years in AWA's accounts to reflect the directors' best estimate of the value of that liability. The claimants argued that the decision to pay both dividends was abreach by the directors of their fiduciary duties towards AWA and that the dividends constituted transactions which contravened IA 1986, s 423.

What was decided in relation to the 'creditors interests duty'?

The claimants argued that AWA's directors had breached their fiduciary duties in declaring the dividend and that they should have had regard to the interests of AWA's creditors given the company's financial situation.

Section 172(1) of the Companies Act 2006 (CA 2006) provides that adirector of acompany must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as awhole (having regard to anumber of matters).

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