Respondents:- (1)Sequana SA (2)Antoine Courteault (3)Pierre Martinet (4)[Clive Mountford] (5)[Martin Newell] (6)Selarl C Basse
LORD REED
1.Introduction
This appeal raises questions of considerable importance for company law. It concerns the fiduciary duty of directors to act in good faith in the interests of the company. In this context, the interests of the company have until recent times been treated as being the interests of its members as a whole. So understood, the duty has been given statutory expression in a modified form in section 172(1) of the Companies Act 2006 (“the 2006 Act”), which requires directors to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. However, where the company is insolvent or, according to some authorities, is at some earlier point in the decline of its fortunes, it has been said that the duty to act in the interests of the company should not be interpreted as a duty to act in the interests of the members as a whole, but should instead be understood as a duty to act in the interests of the company’s creditors as a whole, or as a duty to take the creditors’ interests into account together with those of the members.
A number of justifications have been put forward for these approaches. The one which has received most attention in the authorities proceeds on the basis that the ordinary equiparation of the company’s interests with the members’ interests reflects the fact that it is ordinarily the members who have a proprietary or quasi-proprietary interest in the company’s assets, based upon their entitlement to its residual assets upon its dissolution. Where, on the other hand, the company is insolvent or bordering on insolvency, that interest is said to pass to its creditors, on the basis of their prospective entitlement to the company’s assets upon its winding up. It is therefore said to be imperative that directors are required to manage the company in those circumstances in a way which does not prejudice the creditors’ interests: an objective which can only be achieved if, in the performance of their duty to act in good faith in the interests of the company, they treat the creditors’ interests as paramount, or at least as relevant. It is said that section 172(3) of the 2006 Act, which makes…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
Continue reading BTI 2014 LLC v Sequana SA
Sign in free to access the full text
Details
AGLC
BTI 2014 LLC v Sequana SA [2022] UKSC 25
Case
[2022] UKSC 25
Decision Date
CaseChat Overview and Summary
The case of BTI 2014 LLC v Sequana SA and others reached the UK Supreme Court, where the central issue was whether directors owe a fiduciary duty to consider the interests of creditors when a company is solvent but faces a real risk of future insolvency. The appeal, brought by BTI 2014 LLC, sought to establish that such a duty exists and that it was breached by the directors of the company in question. The Supreme Court, however, dismissed the appeal, holding that no such duty exists under the circumstances described. The court was unanimous in its decision that the directors do not owe a duty to creditors when the company is solvent but at risk of future insolvency. While the court acknowledged the existence of a rule, referred to as the rule in West Mercia, which modifies the understanding of a company’s interests to include creditors' interests when the company is insolvent or on the brink of insolvency, it found that this rule does not apply when the company is solvent. The court also emphasised that the rule in West Mercia does not create a separate duty owed to creditors but modifies the existing fiduciary duty owed to the company. The rationale behind this rule is that when a company is financially stable, the interests of its shareholders are aligned with those of its creditors, but this alignment shifts as the company approaches insolvency. The court further clarified that the rule in West Mercia applies when the company is insolvent or bordering on insolvency, not merely when there is a real but not remote risk of insolvency. This distinction was crucial in determining that the rule does not apply in the present case, where the company was solvent at the material time. The court also examined the impact of the Companies Act 2006 on this issue, confirming that section 172(3) of the Act preserves the rule in West Mercia but does not create a new duty. The court held that the provision was intended to leave the development of the law to the courts, thereby maintaining uncertainty about the exact circumstances in which the rule applies and its precise content. The court concluded that company directors require clear guidance and that the rule in West Mercia, while not creating a self-standing duty, does require directors to consider creditors' interests under certain circumstances. The court's decision provides clarity on the scope and application of the rule in West Mercia, emphasising the need for directors to act in the interests of the company, which includes considering creditors' interests when insolvency is imminent.