The 'Creditors' Interests Duty': When Does It Arise and What Does It Require?

Abstract

Creditors—particularly unsecured creditors—are vulnerable when a company becomes insolvent. A number of mechanisms have evolved to protect unsecured creditors, one of which is the duty of directors to consider (or act in) the interests of creditors when the company approaches insolvency, now contained in s.172(3) of the Companies Act 2006 (UK). This duty, dating back to the 1976 decision of the High Court of Australia in Walker v Wimborne (1976) 137 C.L.R. 1, has required directors to consider the interests of creditors as the company approaches insolvency. The contours of this duty are, however, nebulous. A number of questions arise. First, at what point does the duty arise? Second, what does it require of directors—is it consideration of creditors’ interests, balancing the interests of creditors and shareholders, or prioritizing (or even acting in) creditors’ interests? In this research note the authors discuss the judgment of the Court of Appeal of England and Wales in BTI 2014 LLC v Sequana S.A. [2019] EWCA Civ 112 in which the court considered these two questions.

Keywords: directors' duties, creditors; duty to consider the interests of creditors