01 — Introduction
The Supreme Court’s decision in BTI 2014 LLC v Sequana SA¹ represents a landmark judgment in UK company law, providing much-needed clarification on the duty of company directors to consider the interests of creditors. This duty, often referred to as the ‘creditor duty’, has long been a source of academic debate and practical uncertainty. It operates as a modification of the primary duty of directors under section 172(1) of the Companies Act 2006 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. The core question for the court was to determine the precise point at which this duty to consider creditors' interests is triggered. The parties to the case were BTI 2014 LLC, the assignee of a claim from a company named AWA, and Sequana SA, the parent company of AWA which had received a significant dividend payment. The case is legally significant because it authoritatively defines the 'trigger' for the creditor duty, balancing the principle of shareholder primacy against the need to protect creditors when a company is facing financial distress.
02 — Facts of the Case
The facts leading to this dispute are complex but can be summarised chronologically. Arjo Wiggins Appleton Ltd (‘AWA’), a subsidiary of Sequana SA, had a significant and uncertain long-term pollution-related contingent liability. This liability arose from its historical operations and concerned the potential costs of cleaning up a polluted river in the United States. While the full extent of this liability was unknown, it was acknowledged to be substantial.
In May 2009, AWA’s directors decided to pay a dividend of €135 million to its sole shareholder, Sequana SA. At the time of this payment, AWA was solvent on both a balance sheet and a cash flow basis. The dividend itself was lawful, complying with the statutory requirements for distributions under Part 23 of the Companies Act 2006. The directors had obtained professional advice confirming the company’s solvency and the legality of the dividend. However, there was a real, but not probable, risk that the pollution liability could mature in the future and render AWA insolvent.
Several years later, this risk materialised. The costs of the clean-up proved to be far greater than anticipated, and AWA was unable to meet its liabilities. In October 2018, AWA entered insolvent administration.
BTI 2014 LLC (‘BTI’), as the assignee of AWA's claims, brought proceedings against AWA’s directors, alleging that the payment of the 2009 dividend constituted a breach of their fiduciary duty. The claim was not that the dividend was unlawful under the statutory rules, but that in approving it, the directors had breached their duty to consider the interests of AWA's creditors at a time when the company faced a real risk of future insolvency. The claim was pursued against Sequana SA to recover the sums paid.
The case progressed through the courts. At first instance, the High Court found that the creditor duty had not been triggered because insolvency was not imminent, even if there was a real risk of it in the future.² The Court of Appeal upheld this decision, also rejecting the claimant’s argument that a ‘real risk’ of insolvency was sufficient to engage the duty.³ BTI then appealed to the Supreme Court.
03 — Legal Issues and Arguments
The central legal issue before the Supreme Court was to determine the content and trigger point of the common law creditor duty. Specifically, the court was asked to decide at what stage of a company's financial decline must its directors start to consider the interests of the company’s creditors alongside, or in place of, the interests of its shareholders.
BTI, the appellant, argued for a low trigger point. Its primary submission was that the creditor duty arises when the directors know or should know that there is a 'real risk' of insolvency. BTI contended that this was necessary to provide adequate protection for creditors, whose stake in the company becomes more prominent as the risk of its failure increases. They argued that once the company’s solvency is put at risk, the directors can no longer treat the shareholders' interests as paramount, as it is the creditors' money that is then truly at risk. BTI suggested that waiting until insolvency is probable or inevitable would be too late, as by that point the company's assets may have already been dissipated, leaving creditors with no recourse.
Sequana SA, the respondent, advanced a counter-argument for a much higher trigger point. It contended that the duty is only engaged when a company is actually insolvent, or when insolvency is imminent or probable. Sequana argued that the 'real risk' test was too vague and would create significant commercial uncertainty. If directors were required to consider creditors' interests every time a business decision carried a 'real risk' of insolvency, it would unduly constrain their ability to take legitimate commercial risks, which is essential for business growth and, ultimately, for the benefit of all stakeholders. This, they argued, would lead to an overly cautious and defensive style of management, contrary to the entrepreneurial spirit encouraged by company law. Furthermore, Sequana submitted that the duty owed to the company does not transform into a direct duty owed to creditors themselves; it remains a duty owed to the company, but the content of that duty shifts to include creditor interests.
A secondary issue concerned whether a breach of the creditor duty, if established, could be ratified by the company’s shareholders. However, given the Supreme Court's finding on the primary issue, this point became less critical to the outcome.
04 — Court's Decision and Reasoning
The Supreme Court unanimously dismissed BTI’s appeal, confirming the decisions of the lower courts.⁴ The judgment provided a definitive statement on the nature and timing of the creditor duty.
The Court rejected BTI’s proposed 'real risk of insolvency' test. Lord Briggs, giving the leading judgment, described this test as 'commercially unworkable' and a 'recipe for confusion'.⁵ He reasoned that almost all significant business decisions involve some risk of failure, and to trigger the creditor duty at such a low threshold would cause a permanent shift in directors' obligations, effectively forcing them to manage the company for the benefit of creditors at all times. This would undermine the fundamental principle of section 172 of the Companies Act 2006, which places shareholder interests at the forefront of directors' considerations in a solvent company.
Instead, the Supreme Court held that the creditor duty is engaged when directors know, or ought to know, that the company is insolvent or bordering on insolvency, or that an insolvent liquidation or administration is probable.⁶ This establishes a clearer, albeit still fact-sensitive, trigger point. The Court explained that the duty operates as a 'sliding scale'. When the company is solvent and prosperous, shareholder interests are paramount. As the company’s financial position deteriorates and it moves towards insolvency, the directors must give more weight to the interests of creditors, until a point is reached where insolvency is inevitable, at which point the creditors' interests become paramount.⁷
The Court was also clear that the creditor duty is not a freestanding duty owed directly to creditors. Rather, it is an aspect of the directors' fiduciary duty to the company, as articulated in section 172.⁸ This means that any action for breach of the duty must be brought by the company itself (or, more commonly, by a liquidator or administrator on the company's behalf), not by individual creditors. Lord Reed clarified that the justification for this duty is that, in the context of insolvency, creditors become the true residual claimants to the company’s assets, and their interests must be protected from being prejudiced by actions taken for the benefit of shareholders.⁹
Applying this reasoning to the facts, the Court found that in May 2009, AWA was not insolvent, nor was insolvency imminent or probable. While there was a real risk of future insolvency due to the contingent liability, this was not sufficient to trigger the directors' duty to consider creditor interests when they paid the dividend. Therefore, the directors had not breached their duty, and the claim against Sequana failed.
05 — Critical Analysis and Conclusion
The Supreme Court's decision in Sequana has been largely welcomed for bringing clarity to a contentious area of company law. Its primary strength lies in its rejection of the vague 'real risk' test in favour of a more concrete and commercially sensible framework. By setting the trigger point at the stage where insolvency is probable or the company is 'bordering on insolvency', the Court has provided directors with a more workable standard. This avoids paralysing corporate decision-making and allows directors to continue to take calculated entrepreneurial risks, which is vital for a dynamic economy. As Lord Briggs noted, a lower threshold would have been an unwelcome restriction on legitimate business activity.¹⁰
However, the decision is not without its limitations. While the test is clearer than the alternative, phrases like 'bordering on insolvency' or 'insolvency is probable' may themselves create new uncertainties for directors in practice. Determining the precise moment when a company crosses this line can be a difficult judgment call, especially in a volatile commercial environment. Directors may still face the risk of litigation with the benefit of hindsight if their assessment of the company's prospects turns out to be wrong. This remaining ambiguity means that directors of companies in financial difficulty will need to be extremely cautious and seek regular professional advice.
Furthermore, from a creditor's perspective, the decision may be seen as offering insufficient protection. The facts of Sequana itself illustrate this problem: a lawful dividend was paid which stripped the company of significant assets, yet because insolvency was not probable at that moment, the creditors had no remedy. The decision confirms that directors can, in effect, prioritise shareholders and extract value from a company up until the point that it is on the verge of collapse. This leaves creditors vulnerable to decisions made long before the formal 'zone of insolvency' is entered. Academics have pointed out that the judgment, while providing doctrinal coherence, does little to address the practical problem of value extraction that prejudices future creditors.¹¹
In conclusion, BTI v Sequana is a landmark ruling that provides an authoritative framework for the creditor duty. The Supreme Court has struck a balance between shareholder primacy and creditor protection, siding with a test that promotes commercial certainty and avoids stifling corporate risk-taking. The decision affirms that the creditor duty is a modification of the duty to the company, not a separate duty owed to creditors, and is only triggered when the company's demise is a probability, not just a remote possibility. While this provides welcome clarity for directors, it leaves a potential gap in protection for creditors and creates new, albeit narrower, lines of uncertainty for boards to navigate. The judgment reinforces the traditional common law view that directors’ duties are primarily owed for the benefit of shareholders, with creditor interests only becoming a material consideration when the company is in its financial twilight.
— ¹ BTI 2014 LLC v Sequana SA [2022] UKSC 25. ² BTI 2014 LLC v Sequana SA [2016] EWHC 1686 (Ch). ³ BTI 2014 LLC v Sequana SA [2019] EWCA Civ 112, [2019] BCC 631. ⁴ BTI 2014 LLC v Sequana SA [2022] UKSC 25. ⁵ ibid [174] (Lord Briggs). ⁶ ibid [203] (Lord Briggs). ⁷ ibid [176] (Lord Briggs), discussing the 'sliding scale' concept. ⁸ ibid [6] (Lord Reed). ⁹ ibid [7] (Lord Reed). ¹⁰ ibid [174] (Lord Briggs). ¹¹ See for example Sarah Worthington, 'The Duty to Consider Creditor Interests: BTI 2014 LLC v Sequana SA' (2023) 86(2) MLR 429, 442, who notes that the decision leaves open the possibility of 'opportunistic behaviour' before the trigger point is reached.
06 — References
Table of Cases
BTI 2014 LLC v Sequana SA [2016] EWHC 1686 (Ch)
BTI 2014 LLC v Sequana SA [2019] EWCA Civ 112, [2019] BCC 631
BTI 2014 LLC v Sequana SA [2022] UKSC 25
West Mercia Safetywear Ltd (in liq) v Dodd [1988] BCLC 250
Table of Legislation
Companies Act 2006
Bibliography
Payne J, 'The Creditor Duty: A Search for Coherence' (2023) 139 LQR 19
Worthington S, 'The Duty to Consider Creditor Interests: BTI 2014 LLC v Sequana SA' (2023) 86(2) MLR 429
