AWA paid a substantial dividend to its shareholder, Sequana, while it had long-term contingent liabilities. AWA later became insolvent. BTI, as assignee of claims, argued that AWA's directors had breached a creditor-duty by approving the dividend.
Selected cases
UK Supreme Court · [2022] UKSC 25
BTI 2014 LLC v Sequana SA
The UK Supreme Court explained when directors must consider creditors' interests as a company approaches insolvency.
UK Supreme Court5 Oct 2022
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Quick read
- Directors should change their decision-making discipline as financial distress increases.
- The UK Supreme Court explained when directors must consider creditors' interests as a company approaches insolvency.
Use this to check
- Escalate governance when cash flow gets tight
- Record solvency analysis before dividends or major payments
- Do not wait for formal insolvency before considering creditor impact
Decision snapshot
What happened
- AWA paid a substantial dividend to its shareholder, Sequana, while it had long-term contingent liabilities.
- AWA later became insolvent.
- BTI, as assignee of claims, argued that AWA's directors had breached a creditor-duty by approving the dividend.
What the court had to decide
- The Court had to decide whether English law recognises a creditor-duty and when it is triggered.
What the court decided
- The Supreme Court confirmed that directors can owe a duty to consider creditors' interests when insolvency is imminent or probable, or when insolvent liquidation or administration is probable.
- On the facts, the duty had not been triggered at the time of the dividend.
Practical impact
Practical read
- Directors should change their decision-making discipline as financial distress increases.
- Board papers, cash-flow evidence and creditor impact should become more explicit before dividends, group payments, asset sales or risky trading decisions are approved.
Useful next steps
- Escalate governance when cash flow gets tight
- Record solvency analysis before dividends or major payments
- Do not wait for formal insolvency before considering creditor impact
How businesses should read it
Directors should change their decision-making discipline as financial distress increases. Board papers, cash-flow evidence and creditor impact should become more explicit before dividends, group payments, asset sales or risky trading decisions are approved.
Key takeaways
- Escalate governance when cash flow gets tight
- Record solvency analysis before dividends or major payments
- Do not wait for formal insolvency before considering creditor impact