Company Directors and Creditors
22 JAN 2023
Under the UK law, company directors owe a fiduciary duty to act in the best interest of the company. This interest typically relates to the shareholders and the overall development and success of the company. However, the question of whether a directors’ duty is extended to the company’s creditors was discussed in the case of BTI 2014 LLC v Sequana S.A  UKSC 25 (“Sequana”).
Under section 172 (1) of the Companies Act 2006, it only states that directors are required to have regard to the interest of other stakeholders. However, section 172 (3) expressly preserves the common law rule that requires directors to have regard to the interests of creditors.
Prior to the decision in Sequana, there was a lot of uncertainty about when and if a duty arises to consider the interests of the creditors of the company.
The Supreme Court unanimously agreed that the common law does provide a duty in certain circumstances to the creditors of the company.
If this duty to consider the interest of the creditors only arises under certain conditions, what are they?
The Supreme Court held that the interest of the creditors to the company would trigger where insolvency is probable but not inevitable; or where an insolvent liquidation or administration is inevitable, the directors must treat the creditor’s interest as paramount.
The Supreme Court stated that when a company is faced with potential insolvency, they must consider a balancing act between the interests of the shareholders and the creditors. However, where there is a risk of potential insolvency, the duty is only to consider the interests of the creditors along with the shareholders. It is not until insolvency becomes unavoidable where the interest of the creditors becomes paramount. This is because the Court felt that it would be wrong to implement the duty where the company could still financially recover.
The Supreme Court made it clear that this duty to the creditors is not a stand-alone obligation but rather part of the director’s duties to the company. This effectively broadens the director’s duties to not only the shareholders.
The decision in the Supreme Court was made to both promote “rescue culture” where directors take steps to attempt to save struggling companies, however they also did not want to encourage any director exacerbating the company’s financial situation, for example trading despite being insolvent.
The decision in Sequana has undoubtedly provided a lot of clarity for companies and directors. Directors should take practical steps to implement internal reviews of the company’s financial position to ensure that they are aware of any potential insolvencies arising. If a company is insolvent or likely to become insolvent, directors should take steps to minimise any actions that could be considered as wrongful trading under the insolvency Act 1986, as this could potentially lead to the director being disqualified.
Yulia BarnesManaging Partner
Yulia Barnes is our Managing Partner. She is an experienced solicitor and advises on a wide range of contentious and non-contentious matters for both private and corporate clients.Yulia started her legal career at a large international Magic Circle firm. She then became a partner at a regional law firm and headed a Dispute Resolution Department. She then moved in-house before starting her own Boutique practice, Barnes Law, with the aim of providing exclusive services to high net-worth individuals and privately-owned businesses. More details can be found on her LinkedIn profile.
Expertise Yulia and her team are widely recognised for their professional and practical approach to matters. She is committed to ensuring that her clients’ objectives are achieved in the most cost-effective way possible.
Approach Yulia has a wealth of experience working with businesses of all sizes: from large multinational corporations to start-ups. She has particular expertise in a hospitality industry, investment funds, private and corporate clients, and focuses on startups and technology-driven companies. Yulia brings the same level of attention to detail, professionalism and a personal touch to every case and client, and truly immerses herself in her clients’ businesses. She prides herself on her problem-solving, commercially astute approach and her track record of partnering with clients to help them achieve their strategic objectives.
Will joined Barnes Law as an Associate Solicitor in Spring 2023, shortly after qualifying in September 2022.
Will works mostly on real estate and corporate/commercial matters. Will enjoys providing advice on transactional matters.
Away from the office, Will can be found reading or playing golf. While he played rugby until university, and rowed throughout his degree, he now tends to watch both from the sidelines. During the winter he can also be found skiing.
Will plans to continue developing his legal skills and experience at Barnes Law, under the expertise and guidance provided by Yulia.
Mark is an experienced solicitor whose practice areas include intellectual property (IP), IT, data protection and general commercial law.
Mark advises businesses of all sizes – from sole traders to corporations. Among his clients are: clothing and lifestyle brands, restaurants and food suppliers, IT companies, banks, hedge funds and venture capital firms, education providers, medical and pharmaceutical brands.
Outside of his practice, Mark also advises members of the Institute of Directors as part of its Directors’ Advisory Service.
- Prosecuting a UK trademark application on behalf of an education provider and representing them in related UK IPO opposition and revocation proceedings;
- Advising a publisher and a delivery business on data protection matters, B2B and B2C Ts & Cs of sale, website and app Ts & Cs, all aspects of global brand protection;
- Advising footwear brands, alternative asset managers and hedge funds on their global brand protection, including overcoming various refusals, representing them in opposition proceedings and settlement negotiations;
- Representing a central bank in opposition proceedings before the UK IPO;
- Advising a lifestyle brand concerning trademark clearance and protection, negotiations for a website/app development and maintenance agreement.
Ioulia TatawatFamily Law Adviser
Ioulia has a solid background in family law and offers guidance, clarity, and support to clients during one of their most challenging times in their life.
She advises on all three pillars of separation: divorce, children matters and financial settlements. Ioulia is a member of Resolution and is keen to try to settle matters at early stages.
Ioulia is dedicated to assisting clients and navigating them through their legal matters with clarity and support.
Alex joined Barnes Law in September 2023 after finishing his master’s degree in law. Prior to joining Barnes Law, Alex worked in property litigation at Ashfords. Alex assists Yulia on a variety of both contentious and non-contentious matters.
Outside of the office, Alex enjoys reading and hiking. Prior to working in law, Alex was a competitive tennis player.
Alex continues to develop his skills in legal practice under Yulia’s guidance, he plans to sit the Solicitor’s Qualifying Exams (SQE) in 2024.
Mehves joined Barnes Law in August 2023, right after graduating from Queen Mary, University of London (LLB Senior Status). As part of her qualification journey, Mehves is currently pursuing her Legal Practice Course (‘LPC’) at the University of Law. She also holds a degree in European Union Law from Maastricht University, Netherlands.
Mehves works closely with Yulia on a variety of contentions matters and also writes Barnes Law’s legal blogs, manages social media accounts and is responsible for marketing.
Outside of work and studies, she enjoys running, tennis and yoga.
Mehves is looking forward to developing her legal skills at Barnes Law.
Julia PodgornovaInvestor Relationship Manager
Julia guides clients in making important business decisions based on comprehensive risk assessment and strategy. She supports investors in devising strategies designed to maximise each business’s potential from pre-seed to IPO.
Julia’s particular area of expertise are IT start-ups at different stages. Julia supports business through their fund-raising journey. As an Investor Relations Manager, Julia communicates with investors to facilitate a smooth round and legal part of each transaction.
In her free time Julia enjoys sailing, ballroom dancing, art exhibitions and travel.