UK: England and Wales: the interests of creditors and reductions of capital supported by a solvency statement

Judgment was given yesterday by Mrs Justice Rose in BTI 2014 LLC v Sequana S.A. & Ors [2016] EWHC 1686 (Ch). The judgment contains much interesting and important discussion, including that concerning reductions of capital supported by a solvency statement as well as the circumstances in which directors are required at common law to consider or act in the interests of the creditors

Regarding the solvency statement, one of the issues before the court was the nature of the opinion the directors are required to form under section 643 of the Companies Act 2006. Mrs Justice Rose stated (at para. [327]):

... the opinion that the directors must form is not whether, if calamity were to strike on some or all fronts, the company might be unable to pay its debts nor is it whether the court would have jurisdiction to wind up the company under section 123 of the Insolvency Act on a petition issued on the day the solvency statement was signed. The test is not a technical one but a straightforward one applying the words of the section. The directors must look at the situation of the company at the date of the statement and, taking into account contingent or prospective liabilities, form an opinion as to whether the company is able to pay its debts".

With regard to the circumstances in which directors are required at common law to consider or act in the interests of the creditors, Mrs Justice Rose stated (paras. [477] - [488]).

Having reviewed the authorities I do not accept that they establish that whenever a company is 'at risk' of becoming insolvent at some indefinite point in the future, then the creditors' interests duty arises unless that risk can be described as 'remote'. That is not what the cases say and there is no case where, on the facts, the company could not also be accurately described in much more pessimistic terms, as actually insolvent or 'on the verge of insolvency', 'precarious', 'in a parlous financial state' etc. The essence of the test is that the directors ought in their conduct of the company's business to be anticipating the insolvency of the company because when that occurs, the creditors have a greater claim to the assets of the company than the shareholders".