A recent decision in an English case could impact on how Australian courts view Directors duty to creditors.

A English court found in the case of BTI 2014 LLC v Sequana SA and others [2022] UKSC 25 (BTI) that in certain circumstances directors have a duty to creditors. It is likely that Australian courts will follow the approach in the BTI decision.

In the BTI case, the directors of a company AWA paid a dividend of €135m to the sole shareholder of the company. At the time the company was solvent but there were indications that in the mid to far future the company would become insolvent.

Nine years after the dividend was paid AWA became insolvent and BTI (2014) LLC as the assignee of the entitlement sought to recover the €135m dividend alleging that the directors had breached their duty to the creditors in causing the payment to be made.

On the facts of the case the claim failed because the court found that at the time AWA was neither insolvent nor anywhere near being insolvent. However the court outlined that the directors’ duty to creditors is enlivened where there is:

“….either imminent insolvency (i.e. an insolvency which the directors know or ought to know is just around the corner or going to happen) or the probability of an insolvent liquidation (or administration) about which the directors know or ought to know.”

In light of this development in the law, directors should be mindful of the position of the company’s creditors.