ABSTRACT
In BTI 2014 Llc v Sequana SA [2022] UKSC 25 the United Kingdom Supreme Court affirmed that directors do owe a duty to consider the interests of creditors after their company becomes insolvent. The author has analysed that decision elsewhere: see Watts, ‘Sequana in the Supreme Court: Cautious confirmation of the Creditor-Extension to the Director’s Duty of Loyalty’ [2023] JIBFL 74. This article, under a slightly different title, preceded the decision of the Supreme Court and argued that the concept of a fiduciary duty to creditors was contrary to general principle, and that there were other ways adequately to protect the interests of the creditors of insolvent companies. Capital-maintenance rules limit the capacity of corporate actors, and not just directors, to take actions after insolvency which would involve the return of equity, and sometimes debt, capital to insiders. Fraudulent and wrongful trading provisions otherwise control irresponsible trading. Creditors do not cease to be arm’s-length parties just because their debtor (the company) becomes insolvent. Although there’s now going back in the United Kingdom, the thesis of this article remains valid, if no longer tenable in most Commonwealth jurisdictions.
Watts, Peter G, Why as a matter of English-law principle directors ought not to owe a duty of loyalty to creditors upon insolvency (notwithstanding Sequana) (October 1, 2020).
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