BTI 2014 LLC v Sequana SA & Ors

Appellant

Andrew Thompson KC

Ciaran Keller

(Instructed by Hogan Lovells International LLP (London))

1^st to 3^rd Respondents

Laurence Rabinowitz KC

Niranjan Venkatesan

(Instructed by Skadden Arps Slate Meagher & Flom (UK) LLP)

6^th Respondent

Laurence Rabinowitz KC

Niranjan Venkatesan

(Instructed by Darrois Villey Maillot Brochier (Paris))

Respondents:-

(1)        Sequana SA

(2)        Antoine Courteault

(3)        Pierre Martinet

(4)        [Clive Mountford]

(5)        [Martin Newell]

(6)        Selarl C Basse

LORD REED

1.         Introduction

1. 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.
2. 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 the duty under section 172(1) “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”, recognises or at least preserves this common law rule.
3. As will…