BTI 2014 LLC v Sequana SA

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.