Triggers, content, and enforcement: directors’ duties to creditors – where are we after Sequana?

Abstract

Despite their codification by the Companies Act 2006, there remain several unresolved issues in relation to directors’ duties, in particular, how those duties operate when a company becomes insolvent or where its insolvency is imminent. In 2022, the Supreme Court in BTI 2014 LLC v Sequana SA provided much needed clarity in this area but some questions remain unanswered. This article looks at the Supreme Court’s decision in order to assess when the directors’ duty owed to their company shifts from a duty to act in the best interests of the company’s members to one where the interests of the company’s creditors are paramount or at minimum must be considered alongside the interests of the members. The nature of this ‘creditors’ duty’ will be considered, along with what triggers it and who, if anyone, can enforce it. Although limited to the duty under section172 of the Companies Act 2006, the Sequana case appears to open up the creditors’ duty to all of the directors’ codified duties. The Sequana decision also points out the similarities between the creditors’ duty and the insolvency office-holder actions available under sections 214 and 239 of the Insolvency Act 1986. It is argued here that it may be time to consider opening up the opportunity for creditors to bring a derivative action on behalf of the company for breach of the creditors’ duty.