Directors’ duties to creditors – Supreme Court ruling

Published: 11/10/2022 By Hannah McCormack

It is one of those grey areas that directors face when needing to pay dividends and or creditors if their company may be in some sort of financial difficulty - who takes priority?

A new Supreme Court ruling has confirmed that directors only owe a duty to creditors when the company is deemed to be at a definite risk of insolvency. This means that if the director knows, or for the avoidance of doubt, should know, that the company is insolvent or very near to insolvency, the company’s creditors should be prioritised.

If there is a probable chance a company will be placed into some form of liquidation the director’s have a duty to act in accordance with the interests of the company’s creditors.

Sometimes called creditors duty, it is the job of an Insolvency Practitioner to ascertain whether a director has breached their duties and not acted in the best interests of creditors and therefore whether a claim needs to be made against the director.
The recent supreme court ruling in BTI v Sequana confirms creditors are only prioritised if insolvency is imminent but unfortunately there is no clear cut off point as to when this occurs making it very difficult to judge.

If in doubt we always suggest seeking professional advice, rather than risking it, get advice and ensure you are acting in the best possible way as a director, so as to avoid any claims being made against you.
On the other hand if you are a creditor of a failing business get in touch as we may be able to assist to ensure you are getting the maximum return you as a creditor are entitled to or read our creditor advice page 

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