BTI 2014 LLC v Sequana SA

1. Before considering the development of the idea that the director’s duty to act in good faith in the interests of the company can encompass the interests of creditors, it is helpful to begin by examining the underpinning of the traditional equation of the company’s interests with those of its members.

1. The law has always held that directors in the performance of their duties stand in a fiduciary relationship with the company: In re City Equitable Fire Insurance Co Ltd [1925] Ch 407, 426. That is because, as directors, they manage the company’s affairs on its behalf: see, for example, Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461, 471 and In re Lands Allotment Co [1894] 1 Ch 616, 631. Since they are in a fiduciary position, they must exercise their powers bona fide for the benefit of the company as a whole (Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656, 671), or, as it is often put, bona fide in what they consider is in the interests of the company: In re Smith and Fawcett, Ltd [1942] Ch 304, 306.

1. The courts traditionally treated the interests of a company as being the same as the interests of its members: that is to say, its shareholders, in the case of a company with a share capital. The interests of other persons who might be affected by the company’s success or failure, such as its employees, were treated as relevant only in so far as their treatment might affect the company’s interests, understood as the interests of its shareholders: Hutton v West Cork Railway Company (1883) 23 Ch D 654. Although the separate personality of the company was recognised long before it was authoritatively established in Salomon v Salomon & Co Ltd [1897] AC 22 (“Salomon”), the company was nevertheless regarded, for the purposes of the directors’ duty to act in its interests, as being its collective membership.

1. As a matter of legal history, that approach appears to have been influenced by the continuity of the joint stock company with its precursor, the unincorporated deed of settlement company, in which the members were the company, and the directors were trustees. There appears also to have been a view at one time that the substance of the relationship between the directors and the shareholders as a whole was that the shareholders, as the corporators, entrusted their property to the directors and conferred on them their powers of management. In the eyes of equity, that relationship was analogous to the fiduciary relationship between the directors and the company. That view is illustrated, for example, by the statement in the 6th edition of Lindley on Companies (1902) that “[d]irectors are not only agents, but to a certain extent trustees for the company and its shareholders” (Vol 1, pp 509-510; emphasis added). It is also illustrated by many judicial dicta. In In re Wincham Shipbuilding, Boiler and Salt Co;Poole, Jackson and White’s case (1878) 9 Ch D 322, 328, for example,Sir George Jessel MR stated:

   “It has always been held that the directors are trustees for the shareholders, that is, for the company.”

1. Even after the implications of the separate existence of the company became more clearly established, the courts were slow to treat the company as a distinct entity with interests of its own, and to develop rules for ascertaining those interests, as the logic of the company’s separate personality might have indicated. Notwithstanding that the company was recognised as owning its own property (Macaura v Northern Assurance Co Ltd [1925] AC 619) and as carrying on its own business (Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89), its interests continued to be equiparated with those of its shareholders. For example, in Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286, 291, Lord Evershed MR, with whose judgment the other members of the Court of Appeal agreed, said that the phrase “the company as a whole” did not mean the company as a commercial entity, but meant the corporators as a general body. Although the case was not concerned with the director’s duty to act in the interests of the company, Lord Evershed’s dictum was nevertheless treated as applicable in that context. To this effect, in Parke v Daily News Ltd [1962] Ch 927, 963, it was said that the words “benefit of the company” meant the benefit of the shareholders as a general body. That approach has continued to have its adherents. For example, Sir George Jessel MR’s dictum in In re Wincham Shipbuilding, Boiler and Salt Co, quoted in para 20 above, was cited with approval by the Privy Council in Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187, 218.

1. A different approach, which has been influential in the modern case law, was adopted in Gaiman v National Association for Mental Health [1971] Ch 317, where Megarry J said at p 330 that “[t]he [company] is, of course, an artificial legal entity, and it is not very easy to determine what is in the best interests of the [company] without paying due regard to the members of the [company]”. His Lordship went on to say that he “would accept the interests of both present and future members of the [company], as a whole, as being a helpful expression of a human equivalent”.

1. It has long been established that a company is normally bound in a matter which is intra vires the company by a resolution of the shareholders in general meeting. Authorisation in advance of the directors’ act or ratification after the event by the shareholders in general meeting, after full disclosure, results in the treatment of the directors’ act as the act of the company, on principles of the law of agency, and therefore eliminates the possibility of the company bringing a claim against the directors for breach of their duties to the company.

1. Even in the absence of a formal resolution, “the company is bound in a matter intra vires by the unanimous agreement of its members”: Salomon at p 57 per Lord Davey. This principle, often referred to as the Duomatic principle (In re DuomaticLtd [1969] 2 Ch 365), “is, in short, the principle that anything the members of a company can do by formal resolution in a general meeting, they can also do informally if all of them assent to it”: Ciban Management Corp v Citco (BVI) Ltd [2020] UKPC 21; [2021] AC 122, para 31. In particular, the shareholders can authorise or ratify the acts of directors informally, as well as formally: Julien v Evolving Tecknologies and Enterprise Development Co Ltd [2018] UKPC 2; [2018] BCC 376, para 51.

1. It is firmly established that the directors of a company do not owe any duty to its creditors, absent special circumstances giving rise to such a duty: see, for example, In re Wincham Shipbuilding, Boiler and Salt Co at pp 328-329, In re Horsley & Weight Ltd [1982] Ch 442,453-454, Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258, 288 (“Multinational Gas”), and Kuwait Asia Bank EC v National Mutual Life Nominees Ltd, at p 218. A contrary view was expressed by Lord Templeman in Winkworth v Edward Baron Development Co Ltd [1986] 1 WLR 1512, 1516, and acquiesced in by the other members of the Appellate Committee, but his remarks to that effect were obiter and must be regarded as per incuriam. On the other hand, company law has long contained (and continues to contain) principles which protect the interests of creditors. Examples include the rule requiring the maintenance of the company’s capital, the associated constraints on the payment of dividends and other forms of distribution, and the rules requiring the publication of information relevant to creditors’ ability to protect their own interests (for example, the inclusion of “limited” in the company’s name, and the registration of charges in a public register).

1. As has been explained, for the purposes of the director’s duty to act in the interests of the company, the company’s interests were traditionally equiparated with those of its shareholders, not its creditors. The creditors had such rights against the company as they had contracted for. They also received indirect protection from the directors’ duty to act in the interests of the company, since it was in the shareholders’ interests, and therefore in the company’s interests, to pay the company’s debts in order to carry on its business, and to preserve the company’s reputation for creditworthiness and thus its access to future credit.

1. The traditional view was that, subject to any requirements imposed by statute, such as the rule that the company’s subscribed capital must be maintained, creditors entering into a contractual relationship with a company must be the guardians of their own interests. That view is illustrated by the case of Salomon. It concerned a transaction in which a solvent company purchased the assets of the controlling shareholder and managing director at a grossly overvalued price. All the shareholders knew of the overvaluation and assented to it. As a result of a subsequent downturn in business, the company became insolvent and went into liquidation. The transaction was held to be unassailable by the liquidator. The speeches emphasised that anyone giving credit to a limited company did so at their own risk. As Lord Herschell observed at p 44, the very object of the creation of the company is that the liability of the members for the debts incurred by the company shall be limited; see also, to similar effect, Lord Macnaghten at p 52. It is by limiting liability to creditors, through the interposition of a separate legal person between the shareholders and the creditors, that entrepreneurs are enabled to undertake business activities which they might otherwise be deterred from undertaking by reason of the commercial risk involved. The speeches also emphasised that the protection of creditors lay in their own hands, and that provision is made by statute for the publication of information concerning the company’s affairs in registers open to public inspection.

1. The rationale of this laissez faire approach is that creditors generally give credit to companies in the knowledge that they are running a risk. Some creditors, such as commercial lenders and suppliers, can seek to protect themselves against the risk of the company’s insolvency. For example, they may insist upon guarantees or security for their debt, or seek to take account of the risk in the terms on which they contract with the company, for instance by providing for interest at a rate which reflects the risk involved. Whether and to what extent creditors protect themselves, beyond any protections (such as liens) arising by operation of law, is a matter of commercial judgment and negotiation. They can also avail themselves of the weapon of a statutory demand for payment, carrying the threat of an application for winding up and consequent damage to the company’s reputation. Given the need for creditors to be the guardians of their own interests vis-à-vis the company, with which they are in a contractual relationship, it would be paradoxical if there were widely drawn circumstances in which they had the benefit of unlimited liability as regards the company’s directors, with whom they have no direct legal relationship. That, at least, was the traditional view.

1. A number of significant developments have occurred in relatively recent times. An early pointer was an influential dictum in the Australian case of Walker v Wimborne (1976) 137 CLR 1, where Mason J observed at p 7 that “the directors of a company in discharging their duty to the company must take account of the interest of its shareholders and its creditors”, explaining that “[a]ny failure by the directors to take into account the interests of creditors will have adverse consequences for the company as well as for them.” Another significant dictum, which pointed more clearly in the direction the law was later to take, was that of Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No 1) [1980] 1 WLR 627, 634 that the best interests of the company “are not exclusively those of its shareholders but may include those of its creditors”. This dictum, albeit brief and obiter, recognised that how the company’s interests were understood might depend on the circumstances.

1. The idea that creditors’ interests might be a relevant factor received more extended consideration in the New Zealand case of Nicholson v Permakraft (NZ) Ltd [1985] 1 NZLR 242 (“Permakraft”), where Cooke J expressed the view, obiter, that directors might owe a duty to the company to consider the interests of creditors “if the company is insolvent, or near-insolvent, or of doubtful solvency, or if a contemplated payment or other course of action would jeopardise its solvency” (p 249). He considered that such a duty might apply in respect of the interests of “current and likely continuing trade creditors” (ibid), but not other creditors. He stated that such a duty could be justified on the basis that “[i]n a situation of marginal commercial solvency such creditors may fairly be seen as beneficially interested in the company or contingently so” (p 249). In that regard, he referred to Viscount Haldane’s judgment in Attorney-General for Canada v Standard Trust Co of New York [1911] AC 498, 504-505, and to dicta in Re Horsley & Weight Ltd at pp 455-456per Cumming-Bruce and Templeman LJJ.

1. That reasoning influenced the judgment of Street CJ in Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722 (“Kinsela”), a decision of the New South Wales Court of Appeal which heralded a more radical change in the way in which the law understands the concept of a company’s interests. The case concerned a transaction entered into by a company with the approval of the shareholders at a time when it was balance sheet insolvent, and in anticipation of its imminent collapse, for the purpose and with the effect of placing its assets beyond the immediate reach of its creditors. Street CJ distinguished authorities to the effect that shareholder authorisation or ratification validated any intra vires act by the directors on the basis that they “were not intended to, and do not, apply in a situation in which the interests of the company as a whole involve the rights of creditors as distinct from the rights of shareholders” (p 730). He continued (ibid):

   “In a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arise. If, as a general body, they authorise or ratify a particular action of the directors, there can be no challenge to the validity of what the directors have done. But where a company is insolvent the interests of the creditors intrude. They become prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company’s assets. It is in a practical sense their assets and not the shareholders’ assets that, through the medium of the company, are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration.”

1. Accordingly, he said, “[g]enerally expressed statements of principle regarding the validating effect of shareholder approval are directed to solvent companies” (ibid). As Street CJ noted, that point had previously been made by the Court of Appeal in Multinational Gas (where Dillon LJ remarked at p 288 that “so long as the company is solvent the shareholders are in substance the company” (emphasis added)) and in Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] Ch 246, 296 (“Rolled Steel”).

1. Street CJ concluded at p 732 that although a director’s breach of fiduciary duty could be authorised or ratified by the shareholders where it affected their interests, the position was different where the interests at risk were those of creditors: “[o]nce it is accepted, as in my view it must be, that the directors’ duty to a company as a whole extends in an insolvency context to not prejudicing the interests of creditors … the shareholders do not have the power or authority to absolve the directors from that breach”. Street CJ added at p 733 that he hesitated to formulate a general test of the degree of financial instability which would impose upon directors “an obligation to consider the interests of creditors”, but observed that “the plainer it is that it is the creditors’ money that is at risk, the lower may be the risk to which the directors, regardless of the unanimous support of all of the shareholders, can justifiably expose the company”.

1. That judgment was based upon the idea that the rationale of the traditional treatment of a company’s interests as its shareholders’ interests, for the purposes of the directors’ duty to act in the company’s interests, also justified a limitation of shareholder authorisation or ratification of directors’ breaches of that duty. That rationale, inferred from authorities concerned with solvent companies, was that the shareholders were the persons with a “proprietary interest” in the company’s assets. Where, on the other hand, a company was insolvent, the creditors were prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company’s assets, with the result that “in a practical sense” it was “their assets and not the shareholders’ assets that … are under the management of the directors”.

1. The reasoning in Kinsela, as set out in the dictum quoted at the end of para 31 above, was cited with approval by Dillon LJ, giving the judgment of the Court of Appeal, in West Mercia. The case concerned the decision of a director of an insolvent company to authorise the payment of a debt owed by the company to its parent company, which was also insolvent. The motivation for the payment was to reduce the parent company’s overdraft, which the director had personally guaranteed. The payment was characterised as a fraudulent preference, but no proceedings were brought against the recipient company under the predecessor of section 239 of the 1986 Act, as it was not in a position to repay the money. Instead, the liquidator applied under the predecessor of section 212 of the 1986 Act for a declaration that the director was guilty of misfeasance, and an order that the director repay the money with interest. In the County Court, the judge held that the director had committed no breach of duty in authorising the payment, since it discharged a debt which was due, and the application was dismissed. That decision was overturned on appeal. Dillon LJ, in an unreserved judgment with which the other members of the court agreed, endorsed the approach adopted in Kinsela and concluded that the director had acted in breach of his fiduciary duty when he authorised the payment of the debt “in disregard of the interests of the general creditors of this insolvent company” (p 253). He was ordered to repay the money with interest, but allowed to rank in the liquidation for the amount due to the parent company before the payment had been made.

1. Subsequent English cases, mostly at first instance, have followed West Mercia, although they reveal differing views as to some of its implications, including the circumstances in which a duty in respect of creditors’ interests arises, and the content of the duty once it has arisen. A similar approach has also been followed in Australia and New Zealand, as I have explained, in Hong Kong (Moulin Global Eyecare Holdings Ltd v Lee Sin Mei [2014] HKCFA 63; (2014) 17 HKFCAR 466 (“Moulin Global Eyecare”)), in Ireland (In re Frederick Inns Ltd [1993] IESC 1; [1994] 1 ILRM 387) and elsewhere.

1. The approach adopted to shareholders’ authorisation or ratification of directors’ breaches of their fiduciary duty has developed in step with the approach adopted to the company’s interests: indeed, both Kinsela and the principal English authorities referred to in Kinsela, such as Multinational Gas and Rolled Steel, were primarily concerned with authorisation or ratification. Street CJ summarised the position in Kinsela at p 732, stating that it was legally and logically acceptable to recognise that, where directors were involved in a breach of duty to the company affecting the interests of shareholders, then shareholders could either authorise that breach or ratify it in retrospect. Where, however, the interests at risk were those of creditors, there was no reason in law or logic to recognise that the shareholders could authorise the breach. Once it was accepted that the directors’ duty to a company as a whole extended in an insolvency context to not prejudicing the interests of creditors, the shareholders did not have the power or authority to absolve the directors from that breach.

1. In the later case of In re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler (1994) 122 ALR 531, a decision of the Federal Court of Australia, Gummow J accepted that “[t]he circumstances in which the [directors’] duty to the company includes an obligation to take account of the interests of third parties appears from the decision of Kinsela”: p 549. He continued at p 550:

   “Where a company is insolvent or nearing insolvency, the creditors are to be seen as having a direct interest in the company and that interest cannot be overridden by the shareholders. … [T]he result is that there is a duty of imperfect obligation owed to creditors, one which the creditors cannot enforce save to the extent that the company acts on its own motion or through a liquidator.”

1. That dictum was cited with approval by a majority of the High Court of Australia (Gaudron, McHugh, Gummow and Hayne JJ) in Spies v The Queen [2000] HCA 43;(2000) 201 CLR 603, para 94; see also Westpac Banking Corpn v Bell Group Ltd (No 3) [2012] WASCA 157; (2012) 270 FLR 1 (“Westpac”), paras 2044-2046. Kinsela was again cited with approval in Angas Law Services Pty Ltd v Carabelas [2005] HCA 23; (2005) 226 CLR 507, para 67, in the concurring judgment of Gummow and Hayne JJ.

1. In our domestic law, in Official Receiver v Stern (No 2) [2001] EWCA Civ 1787; [2002] 1 BCLC 119 the Court of Appeal (Sir Andrew Morritt V-C, Buxton and Arden LJJ) stated at para 32:

   “In normal circumstances the shareholders of a company can by acting unanimously waive or ratify a breach of duty by the directors. However, if the company is insolvent this principle no longer applies.”

   That was taken to have been established by West Mercia. That approach was also followed by Sir Andrew Morritt V-C in Bowthorpe Holdings Ltd v Hills [2002] EWHC 2331 (Ch); [2003] 1 BCLC 226, para 51, where he stated that the general principle stated by Lord Davey in Salomon (para 24 above) was subject to the qualification that:

   “… the transaction so authorised must not be likely to jeopardise the company’s solvency or cause loss to its creditors.”

1. It is also relevant to note the obiter statement of Lord Mance in Bilta (UK) Ltd v Nazir (No 2) [2015] UKSC 23; [2016] AC 1, para 38:

   “All the shareholders of a solvent company acting unanimously may in certain circumstances … be able to authorise what might otherwise be misconduct towards the company. But even the shareholders of a company which is insolvent or facing insolvency cannot do this to the prejudice of its creditors...”

In Ciban Management Corpn v Citco (BVI) Ltd [2021] AC 122,para 40, Lord Burrows, giving the judgment of the Board, referred toa “recognised qualification” to the Duomatic principle, namely “that the transaction must not jeopardise the company’s solvency or cause loss to its creditors”.

1. This development in the law concerning authorisation and ratification is consistent with the parallel development of the law concerning the directors’ duty to act in the interests of the company. The rationale is the same: the shift of the predominant interest in the company from the shareholders alone, so as to include the creditors.

1. These developments in the analysis of the company’s interests and in the law governing shareholder authorisation and ratification reflect the development of thinking about the appropriate treatment of creditors by a company as it approaches or enters insolvency. Courts of different jurisdictions have come to the view that once a company becomes unable to meet its obligations to its creditors, or approaches that situation, the directors should consider its creditors’ interests in deciding how the company should be managed.

1. The way in which that feeling has been expressed in the cases has involved a loose or perhaps metaphorical use of legal terminology, for example by describing creditors as “beneficially interested in the company or contingently so” (Permakraft at p 249), or by speaking of the company’s assets becoming the creditors’ assets “in a practical sense” (Kinsela at p 730), or by describing the situation where a company is insolvent or approaching insolvency as one where “it is the creditors’ money which is at risk” (Kinsela at p 733). That language suggests an analysis based upon the transfer of a proprietary or “quasi-proprietary” interest in the assets of the company from its shareholders to its creditors as the company approaches or enters insolvency. Whatever the position may be under the law of Australia or New Zealand (cf Commissioner of Taxation v Linter Textiles Australia Ltd [2005] HCA 20; (2005) 220 CLR 592), there is no transfer of a proprietary interest under English law. A company’s shareholders have no proprietary interest in its assets: Macaura v Northern Assurance Co Ltd [1925] AC 619; Short v Treasury Comrs [1948] 1 KB 116, affirmed [1948] AC 534; Marex Financial Ltd v Sevilleja [2020] UKSC 31; [2021] AC 39, paras 31 and 105. Nor do its creditors, even when the company is being wound up, although they then have a statutory entitlement to share in the proceeds of the realisation of its assets: Ayerst v C & K (Construction) Ltd [1976] AC 167, 178-179.

1. The analysis may be clearer and more realistic if one thinks of interests in an economic rather than legal sense. The essential points being made in cases such as Permakraft and Kinsela are, first, that the creditors have an economic interest in the company’s assets where it is insolvent or nearing insolvency (and, one might add, an interest also in its liabilities: the amount which they may receive in a winding up depends on the company’s liabilities as well as its assets), and secondly, that the directors should therefore manage the company’s affairs in a way which takes their economic interests into account and seeks to avoid prejudicing their interests.

1. I mentioned in para 22 above the approach to the company’s interests which was adopted by Megarry J in Gaiman v National Association for Mental Health, and which sought to find an equivalent in the real world to the interests of an “artificial” person. To similar effect, Nourse LJ stated in Brady v Brady [1988] BCLC 20, 40:

   “The interests of a company, an artificial person, cannot be distinguished from the interests of the persons who are interested in it. Who are those persons? Where a company is both going and solvent, first and foremost come the shareholders, present and no doubt future as well. How material are the interests of creditors in such a case? Admittedly existing creditors are interested in the assets of the company as the only source for the satisfaction of their debts. But in a case where the assets are enormous and the debts minimal it is reasonable to suppose that the interests of the creditors ought not to count for very much.”

1. That seems to me to be right, and not only where the company’s assets are enormous and its debts are minimal. So long as a company is financially stable, and is therefore able to pay its creditors in a timely manner, the interests of its shareholders as a whole, understood as a continuing body, can be treated as the company’s interests for the purposes of the directors’ duty to act in its interests. It is the shareholders whose interests are affected by fluctuations in its profits and reserves, as they are the persons entitled to share in its distributions and its surplus assets. Of course, the directors also have to be mindful of creditors if they are going to act in the company’s interests, since the payment of its debts as they fall due forms part of the conduct of its business. The company will suffer a loss of reputation and creditworthiness, and ultimately will be unable to continue its business, if its debts are not paid. But, so long as the company is financially stable, the creditors’ interests do not require to be considered as a discrete aspect of the company’s interests for the purposes of the directors’ fiduciary duty to the company. It is sufficient for the directors to promote the interests of the shareholders in order for the company’s business to be carried on over the long term and for the company’s debts to be paid as part of the conduct of its business.

1. That situation alters if the company is insolvent or bordering on insolvency. As losses are incurred, and the company’s surplus of assets over liabilities disappears, the company’s creditors as a whole become persons with a distinct interest (possibly, depending on the gravity of the company’s financial difficulties, the predominant interest) in its affairs, as they are dependent on its residual assets, or on the possibility of a turnaround in its fortunes, for repayment. I refer to the creditors “as a whole” for two reasons. First, individual creditors may be in different positions, and may even have conflicting interests: that may be the position, for example, of secured creditors as compared with unsecured creditors. Secondly, the interests of the company cannot be confined to the interests of current creditors as at the time of a given decision by the directors, any more than they can be confined to the interests of current shareholders. Since the identities of the company’s creditors constantly change so long as debts continue to be incurred and discharged, any consideration of the company’s long term interests, where the rule in West Mercia applies, must include consideration of the interests of its creditors as a class rather than as a fixed group of individuals.

1. The resultant position seems to me to have been aptly summarised by Lord Toulson and Lord Hodge in Bilta (UK) Ltd v Nazir (No 2), para 167:

   “[W]hen a company is insolvent or on the border of insolvency its interests are not equated solely with the proprietary interests of its owners. Company law requires that the interests of creditors receive proper consideration by the shareholders and directors. Although the creditors are not shareholders, as creditors they are recognised at that point as having a form of stakeholding in, or being a constituency of, the company which is under the management of the directors, and their interests are to be protected at law through the directors’ fiduciary duty to the company, which encompasses proper regard for the creditors’ interests.”

1. That is not, however, to say that the interests of the shareholders vanish whenever a company becomes insolvent or is bordering on insolvency. In Brady v Brady, Nourse LJ went on at p 40 to say that “where the company is insolvent, or even doubtfully solvent, the interests of the company are in reality the interests of existing creditors alone”. That seems to me to overstate the position. It is only where an insolvent liquidation or administration is unavoidable that the shareholders can be said to have no remaining interest in the company, since it is only in that eventuality that their shares become worthless. A company may become insolvent without there being any reason to believe that insolvency proceedings are inevitable (as, for example, in Rubin v Gunner [2004] EWHC 316 (Ch); [2004] 2 BCLC 110 and In re Continental Assurance Co of London plc (No 4) [2007] 2 BCLC 287). Insolvency is not an uncommon phenomenon in the life of viable companies, and it need not be either permanent or fatal to long-term success.

1. Against that background, the nuanced approach adopted in Kinsela makes sense: that is to say, an approach which recognises that where a company is insolvent or bordering on insolvency, the way in which the interests of the company are understood, for the purposes of the directors’ duty to act in good faith in its interests, is extended so as to include the interests of the company’s creditors as a whole as well as those of its shareholders. Where the company’s interests have to be understood in that extended sense, it will be a breach of the directors’ duty to the company for them to act in disregard of the creditors’ interests.

1. The question arises why, even if creditors have an interest in the company which emerges distinctly when the company is nearing or entering insolvency, it follows that the directors should manage the company’s affairs in a way which takes their interests into account. As was explained in paras 27-28 above, the traditional approach to the treatment of creditors regards them as being responsible for the protection of their own interests. That approach reflects, in the first place, the view that one of the principal purposes of limited liability, and of the separate legal personality of the company, is to cast upon creditors the risk of the company’s failure. It also reflects the fact that the relationship between creditors and the company is usually contractual. In principle, contractual creditors can negotiate the terms on which credit is given so as to charge a price which reflects the risk undertaken. Accordingly, subject to certain protections designed to ensure the availability of the information necessary to price the risk, and the maintenance of the company’s share capital after the loan has been given, it can be argued that the creditors can be expected to be the guardians of their own interests.

1. It seems to me to be undeniable that limited liability, and the interposition of a separate persona between the shareholders and the creditors, are designed to protect shareholders against claims arising from the company’s failure, and accordingly expose creditors to a corresponding risk. But that does not entail that creditors should be bereft of legal protection, as both company law and insolvency law have always recognised. Acceptance of the need for limited liability to encourage entrepreneurial activity does not in itself justify the view that, even when a company is insolvent or in the vicinity of insolvency, the directors’ duty to act in the interests of the company requires them to act solely in the interests of its shareholders.

1. That view rests on the second consideration mentioned in para 52 above: the theory that creditors are able, subject to certain conditions underpinned by the law (such as the availability of relevant information about a company’s affairs, a guarantee that its share capital will be maintained, and the absence of misrepresentation by the borrower), accurately to price the risk of default on a debt, and to reflect it in the terms on which credit is given. Since interest is payment not only for the use of the money lent but also for the risk that the borrower will fail to repay it, the actual outcome (repayment or default) is in principle irrelevant. Creditors therefore deserve no consideration in the event that the company becomes insolvent or approaches insolvency: that possibility has already been fully taken into account, and they have been remunerated by the company, by the payment of interest, for taking the risk of such an eventuality. If they did not charge an adequate rate of interest, they have no-one to blame but themselves. So the theory runs.

1. Both the empirical claims and the analytical basis of that theory have long been controversial. Economists and legal scholars remain divided between those who view the market, and some basic legal precautions, as providing all the protection creditors require, and those who consider the traditional forms of protection to be only partially effective. Those who take the latter view point out, for example, that the theory of self-protection cannot apply to some creditors, such as tort claimants, who have no contract with the company. They question whether it is realistic to expect some other categories of creditor, such as employees and consumers, to negotiate the terms on which credit is given. They also point out that, although company law has long protected creditors against the risk of the company’s capital being diminished after a loan has been made, thereby altering the basis on which interest might have been calculated, it has not provided comparable protection against the risk of the company’s incurring additional liabilities after a loan has been made, which can be equally damaging to a prior lender.

1. This is not the place to explore that debate, let alone to attempt to resolve it. Whatever the merits or demerits of the rival theories, courts in this jurisdiction and in several other parts of the common law world have accepted that the company’s insolvency or near-insolvency results in a significant change in the situation. In doing so, they appear to have been influenced primarily by the view that the company’s interests should be understood in the light of the interests of the classes of person who have a substantial economic interest in the company, as I have explained, and whose interests are accordingly liable to be placed at risk by the way in which the directors exercise their powers.

1. The point can be illustrated by envisaging a company which is on the cusp of insolvency, and whose assets are exactly equal to its liabilities. If it ceases trading and is wound up, its creditors will be repaid in full, and its shareholders will receive nothing. If it continues trading, its shareholders will usually be no worse off whatever happens, but have a chance (perhaps a small one) of being much better off, while its creditors will be no better off whatever happens, but have a chance (perhaps a large one) of being much worse off. In that regard, it is necessary to recall that creditors are being considered as a class: secured creditors may be no worse off, but unsecured creditors are at risk. Since continued trading will be primarily at the creditors’ risk, it is right that decisions as to whether to continue trading, and as to the level of risk to undertake, should be taken with regard to their interests.

1. If one envisages the more realistic example of a company which is insolvent or facing insolvency, the position is more complex, but not fundamentally different. In practice, the general body of creditors may well stand to benefit, as well as the shareholders, if the company can be turned around or its business can be disposed of advantageously, since they may have little prospect of receiving any significant distribution in an insolvent winding up. Nevertheless, the creditors will usually remain the primary bearers of the risks involved, and decisions in relation to a rescue strategy should therefore be taken with regard to their interests. That is not, of course, to say that a rescue strategy is ruled out: depending on the circumstances, the directors may well consider in good faith that such a strategy is in the interests of the company, having regard to the interests both of the creditors and also of the shareholders as a whole.

1. The treatment of the company’s interests as equivalent to the shareholders’ interests can therefore be regarded as justifiable while the company is financially stable, since it results in the directors being under a duty to manage the company in the interests of those who primarily bear the commercial risks which the directors undertake; and, as explained in para 47 above, creditors are also protected. But that ceases to be true when the company is insolvent or nearing insolvency. To treat the company’s interests as equivalent to the shareholders’ interests in that situation encourages the taking of commercial risks which are borne primarily not by the shareholders but by the creditors, who will recover less in a winding up if the company’s assets have been diminished or if it has taken on additional liabilities. In economic terms, treating the company’s interests as equivalent to the shareholders’ interests in a situation of insolvency or near-insolvency results in the externalisation of risk: losses resulting from risk-taking are borne wholly or mainly by third parties.

1. Other justifications have also been put forward for widening the focus of the directors’ duty to include creditors’ interests when the company is in the vicinity of insolvency. As the cases demonstrate, directors and shareholders (often, in the case law, the same individuals) have historically demonstrated remarkable ingenuity in devising means of preventing the company’s assets from falling into the hands of non-insider creditors (ie creditors who are not themselves shareholders or directors of the company). The rule in West Mercia has played a role in constraining that behaviour, or at least in providing a remedy against directors who have been responsible for such conduct. Most of the cases in which the rule has been invoked, including West Mercia itself, have concerned behaviour of that kind. In the present case, for example, the claim for breach of fiduciary duty is brought against the directors in addition to a claim against the recipient of the payment in question under section 423 of the 1986 Act, which concerns transactions defrauding creditors, the latter claim having succeeded but being of questionable value because of the recipient’s having entered insolvency proceedings.

1. Section 423 is one among a number of rules of insolvency law which provide creditors with protection against behaviour by directors which prejudices their interests. Such protection has been strengthened in recent times, particularly as the result of the introduction of provisions on wrongful trading, currently contained in sections 214 and 246ZB of the 1986 Act. It will be necessary to consider the implications of those provisions at a later point.

1. Another important development in insolvency law is also relevant. The Cork Committee’s report on the reform of insolvency law, “Insolvency Law and Practice” (Cmnd 8558, 1982), treated the salvage of the enterprise as a going concern, where possible, as one of the priorities of insolvency. That reflected the good sense, both economically and socially, of keeping plant intact, avoiding redundancies, and preserving business connections. The 1986 Act contains a number of provisions designed to pursue those objectives, for example in relation to administration orders, compromises or arrangements with creditors, and, following amendments made by the Corporate Insolvency and Governance Act 2020, moratoriums, “payment holidays”, and restrictions on insolvency proceedings. If, as some commentators have suggested, the rule in West Mercia encourages directors to consider the financial status of the company and the interests of its creditors, and to seek the assistance of insolvency practitioners at an earlier stage than they might otherwise have done in order to bring the company back from the brink of insolvency, it is consistent with the pursuit of those objectives. It is also important to remember that, as Sir Richard Scott V-C explained in Facia Footwear Ltd v Hinchliffe [1998] 1 BCLC 218, being on the brink of insolvency does not necessarily require an immediate cessation of trade and the realisation of the company’s assets. Depending on the circumstances, continuing to trade may be honestly believed to offer the best prospect of the creditors being paid, even if it also carries some further financial risk. If so, that course of action will be consistent with the directors’ performance of their fiduciary duty.

1. The general duties owed by a director to the company are now set out in sections 171 to 177 of the 2006 Act. As section 170(3) explains, they are based on certain common law rules and equitable principles as they apply in relation to directors, and have effect in place of those rules and principles as regards the duties owed to a company by a director. They are to be interpreted and applied in the same way as common law rules or equitable principles, and regard is to be had to the corresponding common law rules and principles in their interpretation and application: section 170(4). The remedial consequences of breaches of the general duties are the same as would apply if the corresponding common law rule or equitable principle applied: section 178.

1. The general duty which corresponds to the common law duty to act in good faith in the interests of the company is the duty under section 172 to promote the success of the company. In that regard, section 172(1) provides:

   “A director of a company 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 a whole, and in doing so have regard (amongst other matters) to –

   (a) the likely consequences of any decision in the long term,

   (b) the interests of the company’s employees,

   (c) the need to foster the company’s business relationships with suppliers, customers and others,

   (d) the impact of the company’s operations on the community and the environment,

   (e) the desirability of the company maintaining a reputation for high standards of business conduct, and

   (f) the need to act fairly as between members of the company.”

1. It is unnecessary for present purposes to undertake a detailed analysis of section 172(1). A few points are however worth noting. First, the primary duty imposed on directors by section 172(1) is expressed in terms of promoting “the success of the company for the benefit of its members as a whole”. Accordingly, the duty is no longer expressed by reference to the interests of the company, and the previous problem of identifying the interests of an artificial person is side-stepped. Since the duty under section 172(1) is focused on promoting the success of the company “for the benefit of its members as a whole”, it is clear that, although the duty is owed to the company, the shareholders are the intended beneficiaries of that duty. To that extent, the common law approach of shareholder primacy is carried forward into the 2006 Act.

1. In carrying out their primary duty under section 172(1), the directors are also under a secondary obligation to have regard “amongst other matters” to the considerations listed in paragraphs (a) to (f). This reflects a recognition that the promotion of the company’s success requires that consideration be given to such matters as the interests of its employees and the need to foster its business relationships with suppliers and customers. That is not a novel idea: at common law, it was accepted that the interests of employees could be relevant to the directors’ fulfilment of their fiduciary duty in so far as they affected the interests of the company, and their relevance has also been recognised by statute since section 46 of the Companies Act 1980, subsequently re-enacted as section 309 of the Companies Act 1985. The principle accepted in Hutton v West Cork Railway Co in relation to the interests of employees (“The law does not say that there are to be no cakes and ale, but there are to be no cakes and ale except such as are required for the benefit of the company”: p 673 per Bowen LJ) would also have applied to other stakeholders whose interests were relevant to the company’s interests.

1. The considerations listed in paragraphs (a) to (f) are capable of including the treatment of certain creditors of the company. Creditors are liable to include employees, suppliers, customers and others with whom the company has business relationships; and their treatment may well affect the company’s reputation and its creditworthiness, and have consequences for it in the long term. However, the primary duty imposed by section 172(1) remains focused on promoting the success of the company for the benefit of its members.

1. Section 172(3) adds the following qualification:

   “The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.”

1. This provision makes the duty imposed by section 172(1) subject to “any … rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors”. The rule in West Mercia is a rule of law fitting that description. That common law rule is accordingly preserved.

1. As it seems to me, that conclusion follows from the terms of section 172(3) itself, and the state of the prior law. I do not find it necessary to consider pre-legislative materials. Nor do I find assistance in the explanatory notes prepared by the Department of Trade and Industry (“DTI”). It is the court’s interpretation of the words used by Parliament, not that of an official at the DTI, which is important for present purposes.

1. I would not, however, go so far as to say that section 172(3) affirms the rule in West Mercia. Given the previous body of case law, as set out in West Mercia and the subsequent cases, it can be taken that Parliament was aware of that line of authority, and section 172(3) implies that Parliament was content to leave its further consideration and possible development to the courts; but I do not read section 172(3) as necessarily endorsing West Mercia. All the provision affirms is that the duty imposed by section 172(1) is subject to any rule of law of the kind described.

1. I note that the view that section 172(3) preserves the common law rule established in West Mercia was adopted in Bilta (UK) Ltd v Nazir (No 2) by Lord Sumption at para 104 (“the common law duty is preserved by section 172(3)”), and by Lord Toulson and Lord Hodge at paras 123-124 (“[t]he principle [that the fiduciary duty of a director of a company which is insolvent or bordering on insolvency … requires him to have proper regard for the interests of its creditors and prospective creditors] now has statutory recognition”). The same view was also expressed by Lord Hodge, obiter, in a judgment with which the other members of the court agreed, in MacDonald v Carnbroe Estates Ltd [2019] UKSC 57; 2020 SC (UKSC) 23; [2020] 1 BCLC 419, para 33.

1. I am not persuaded by the argument that other general duties of directors, such as the duty under section 171 to “only exercise powers for the purposes for which they have been conferred”, are incompatible with this interpretation of section 172(3). The common law rule preserved by section 172(3) was developed by the courts harmoniously with the common law predecessors of the general duties now set out in sections 171-177, and section 170(4) should ensure that such coherence continues. In addition, it seems to me that acceptance that the fiduciary duty of directors to the company is re-oriented so as to encompass the interests of creditors, when the company is insolvent or bordering on insolvency, must result in a similar re-orientation of related duties. The proper purposes for which powers can be exercised, in accordance with section 171, include advancing the interests of the company, which in those circumstances must be understood as including the interests of its creditors, as was held in In re HLC Environmental Projects Ltd [2013] EWHC 2876 (Ch); [2014] BCC 337, para 99. Similarly, the duty under section 174 to exercise reasonable care, skill and diligence must be directed, in those circumstances, to the interests of the company as understood in that context, as appears to have been accepted in a number of cases (eg In re MDA Investment Management Ltd [2003] EWHC 2277 (Ch); [2004] 1 BCLC 217, paras 70 and 75, and Roberts v Frohlich [2011] EWHC 257 (Ch); [2011] 2 BCLC 625, para 98).

1. The only other observation that I would make in relation to this issue is that care needs to be taken when applying section 174 together with the duty to promote the success of the company in section 172(1) as modified by the rule preserved by section 172(3). The former is not a fiduciary duty: see Bristol and West Building Society v Mothew [1998] Ch 1, 17. It is concerned with negligence, judged objectively. The latter is concerned with good faith, generally judged subjectively: Regentcrest plc v Cohen [2001] 2 BCLC 80, para 120; cf In re HLC Environmental Projects Ltd, para 92(b).

1. The 2006 Act preserves the common law relating to shareholders’ authorisation of acts undertaken by directors in breach of their duties. Section 180(4)(a) provides that the general duties of directors (which include the duty under section 172(1)) have effect “subject to any rule of law enabling the company to give authority, specifically or generally, for anything to be done (or omitted) by the directors, or any of them, that would otherwise be a breach of duty”. Section 239 also recognises the common law doctrine of ratification, while laying down certain procedural requirements. Subsection (6)(a) preserves the Duomatic principle in this context, by providing that nothing in the section affects the validity of a decision taken by unanimous consent of the members of the company. Section 281(4)(a) also preserves the Duomatic principle, by providing that nothing in Part 13 of the Act, which concerns resolutions and meetings, affects any enactment or rule of law as to things done otherwise than by passing a resolution.

1. This is the most fundamental question raised by this appeal. I answer it in the affirmative. It is clear that such a rule was recognised by the Court of Appeal and lower courts before the enactment of the 2006 Act. The existing law in this regard was preserved by section 172(3) of that Act, as this court has previously accepted in the cases of Bilta (UK) Ltd v Nazir (No 2) and MacDonald v Carnbroe Estates Ltd. I am satisfied that the rule has a sound legal basis, as explained in paras 46-51 above.

1. It is important to understand that the rule in West Mercia does not create any new duty: it merely adjusts the long-established fiduciary duty to act in good faith in the interests of the company. Where the rule applies, the way in which the company’s interests are understood, for the purposes of that duty, is extended so as to encompass the interests of the general body of creditors as well as the interests of the general body of shareholders. That reflects a recognition that the traditional identification of the interests of the company with those of its shareholders, although satisfactory when the company is financially stable, needs to be widened when insolvency is imminent. The interests of the creditors as a whole should then also be taken into account and given appropriate weight, as explained in para 81 below. If insolvent liquidation or administration is unavoidable, the interests of the shareholders drop out of the picture, and the company’s interests can be treated as equivalent to those of the creditors alone.

1. It is unnecessary to consider the content of the duty in detail for the purpose of determining this appeal, but some general comments are appropriate, first because the content of the duty is relevant to determining the circumstances in which it arises, and secondly in order to address the argument that the duty is incompatible with certain provisions of the 1986 Act. I express my views only on a provisional basis, since this issue does not have to be determined in order to decide this appeal.

1. As I have explained, it seems to me that the effect of the rule in West Mercia is to preserve the directors’ duty to act in the interests of the company, but to modify the sense of the latter expression so that, where the rule applies, the interests of the company are no longer regarded as solely those of its shareholders but are understood as including those of its creditors as a whole. That was the view adopted in Kinsela and approved in West Mercia. It was endorsed by Lord Toulson and Lord Hodge in Bilta (UK) Ltd v Nazir (No 2), para 123, in remarks with which I agree:

   “It is well established that the fiduciary duties of a director of a company which is insolvent or bordering on insolvency differ from the duties of a company which is able to meet its liabilities, because in the case of the former the director’s duty towards the company requires him to have proper regard for the interest of its creditors and prospective creditors. The principle and the reasons for it were set out with great clarity by Street CJ in Kinsela...”

   They added, at para 126:

   “…. the protection which the law gives to the creditors of an insolvent company while it remains under the directors’ management is through the medium of the directors’ fiduciary duty to the company, whose interests are not to be treated as synonymous with those of the shareholders but rather as embracing those of the creditors.”

1. Some authorities have gone further. In Bilta (UK) Ltd v Nazir (No 2), para 104, Lord Sumption summarised the effect of the rule in West Mercia as “treating the interests of an actually or prospectively insolvent company as synonymous with those of its creditors”. A similar view was expressed by Nourse LJ in Brady v Brady (para 50 above), and has also been accepted in some of the more recent decisions at first instance. However, those dicta appear to me to go further than is justified by the rationale of the rule in West Mercia, as I explained at para 50 above. It is only where an insolvent liquidation or administration is unavoidable that the shareholders cease to have any interest in the company, and their interests can therefore be left out of account.

1. Where the company is insolvent or bordering on insolvency but is not faced with an inevitable insolvent liquidation or administration, the directors’ fiduciary duty to act in the company’s interests has to reflect the fact that both the shareholders and the creditors have an interest in the company’s affairs. In those circumstances, the directors should have regard to the interests of the company’s general body of creditors, as well as to the interests of the general body of shareholders, and act accordingly. Where their interests are in conflict, a balancing exercise will be necessary. Consistently with what was said in Kinsela at p 733 (para 33 above), and with the reasoning in paras 48-59 above, it can I think be said as a general rule that the more parlous the state of the company, the more the interests of the creditors will predominate, and the greater the weight which should therefore be given to their interests as against those of the shareholders. That is most clearly the position where an insolvent liquidation or administration is inevitable, and the shareholders consequently cease to retain any valuable interest in the company.

1. I agree with Lord Briggs that there is much to be said for an approach to these issues which is sufficiently fact-specific to “take account of differences, according to particular circumstances, in what it may be reasonable and responsible for directors to do when they find that the company is in a sufficiently weak financial situation that a conflict of interest between its creditors and its shareholders appears to arise”, as Lt Bailiff Hazel Marshall QC said in Carlyle Capital Corpn Ltd v Conway (Judgment 38/2017) (unreported) 4 September 2017 (Royal Court of Guernsey), para 456.

1. For the purposes of the present appeal, the critical question is whether the rule arises whenever there is a real and not remote risk of insolvency: an idea derived from some Australian authorities, such as Grove v Flavel (1986) 11 ACLR 161, 170 and Kalls Enterprises Pty Ltd v Baloglow [2007] NSWCA 191; (2007) 25 ACLC 1094, para 162. In my view, it does not. That follows from the rationale of the rule. It is premised, as was explained above, on a shift in the economic interest in the company, and consequently in the distribution of the risk of loss, from the shareholders as a whole to include the creditors as a whole. As has been explained, as long as the company is financially stable, its shareholders will normally have a predominant economic interest in the manner in which its affairs are managed, and their interests will normally be aligned with those of its creditors. When the company is in financial difficulties, however, the economic interest of its creditors become distinct from those of its shareholders, and are liable to become increasingly predominant as the company’s situation deteriorates. That shift in interests does not occur merely because there is a real but not remote risk of insolvency. In that eventuality, the predominant interest will normally continue to be held by the shareholders, and the interests of creditors will not require separate consideration.

1. It is unnecessary to go much further for the purposes of this appeal, but something more needs to be said in order to address, at a later point, the argument that there is a conflict with insolvency law.

1. In the Court of Appeal, David Richards LJ rejected the contention that the rule in West Mercia applied only on insolvency, and preferred a test of whether insolvency was likely, on the basis that the precise moment that a company becomes insolvent is hard to pinpoint. I am not convinced by that reasoning. It is true that the precise moment when a company becomes insolvent can be difficult to pinpoint, although it is in principle ascertainable, at least with the assistance of expert evidence. But the precise moment when a company becomes likely to become insolvent is no easier to pinpoint. On the contrary, substituting a relatively vague test (likely to become insolvent) for a more exact test (insolvency) adds to the difficulty of pinpointing a precise moment when the threshold is crossed. Nonetheless, I agree with David Richards LJ’s rejection of a test of insolvency, for a different reason.

1. As a matter of principle, the explanation of the treatment of the company’s interests as involving, in some circumstances, the creditors’ interests is inconsistent with the restriction of those circumstances to insolvency. As I have explained, the rationale for treating the company’s interests as involving the creditors’ interests is not based on insolvency in itself, but on a shift in the economic interests in the company, and consequently in the risk of loss arising from the manner in which the directors exercise their powers. That shift is discernible when insolvency is imminent: the onset of insolvency is merely the clearest sign that such a shift has occurred. It follows that the relevant question is not whether the company is insolvent or will be rendered insolvent as a result of the transaction in question.

1. In principle, the critical factor is whether, given where the economic interests lie, and the consequent distribution of risk, it continues to be appropriate to treat the interests of the company as equivalent to the interests of its shareholders alone. That principle has to be reflected in the law in a way which can operate as a practical guide to the day to day conduct of directors managing companies without the benefit of hindsight. This is an area of the law where clarity and practicality must be prioritised: the provisions of the 2006 Act concerning directors’ duties are based on a recognition that directors need clear standards to guide them, and relevant developments in the common law need to be based on the same recognition.

1. With that in mind, I am at present inclined to agree with the view expressed by Lord Toulson and Lord Hodge in Bilta (UK) Ltd v Nazir (No 2), para 123, that it is sufficient if the company is “insolvent or bordering on insolvency”. Other phrases to the same effect can be found in many other cases decided since West Mercia, including Brady v Brady at p 40 (“insolvent, or even doubtfully solvent”), Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2002] EWHC 2748 (Ch); [2003] 2 BCLC 153, para 74 (“insolvent or of doubtful solvency or on the verge of insolvency”), and in re Loquitur Ltd [2003] EWHC 999 (Ch); [2003] 2 BCLC 442, para 240 (“insolvent or potentially insolvent”). These phrases are broadly synonymous, and all convey a sense of imminence. As to what is meant by “insolvency”, although the court heard no submissions on the point, I am inclined to think that the term can conveniently and aptly be understood in this context in accordance with the tests laid down in section 123(1)(e) and (2) of the 1986 Act, ie cash flow or commercial insolvency, or balance sheet insolvency. I am inclined to agree with Lord Briggs and Lord Hodge that the probability of an insolvent liquidation or administration is also sufficient for the creditors’ interests potentially to diverge from those of the shareholders and therefore to require separate consideration.