BTI 2014 LLC v Sequana SA and others

1. Case Citation and Basic Information

Case Full Name: BTI 2014 LLC v Sequana SA and others

Neutral Citation: [2022] UKSC 25

Law Reports Citation: [2024] AC 211, [2023] 2 All ER 303, [2022] 3 WLR 709.

Court: Supreme Court of United Kingdom.

Date of Decision: 5^th October 2022

Judges/Bench Composition: Lord Reed (President), Lord Hodge (Deputy President), Lord Briggs, Lady Arden, and Lord Kitchin.

2. Brief Introduction

The case of BTI 2014 LLC v Sequana SA[1] is a landmark UK Supreme Court case law regarding director’s duties in the context of corporate insolvency and caused a significant debate amongst commercial law thinkers in the UK. The case is crucial for UK commercial law as it addresses the long-standing question about director duties under Companies Act[2]. The dilemma was when should directors prioritise the interest of creditors rather than the interest of shareholders. Specifically, the court reflected upon the scope of a director’s duty towards the creditors also known as the “Creditor Duty”.  

This common law doctrine plays a crucial role in safeguarding the interest of creditors when companies face financial distress. By examining the creditor’s duty, the five Judges finally reconciled the decade-long disagreements in the lower courts and cleared the confusion on the matter as seen in West Mercia Safetywear Ltd[3].

The case examined a dispute concerning substantial dividends payment made by a solvent corporation that would face significant environmental liabilities. The dispute gave rise to an important question, whether a company’s director must take regards towards creditor’s interest before being made insolvent and if so when does this duty arise. The judges unanimously decided that the duty only arises if there is a probable or imminent chance of insolvency rather than a mere risk in the future.

This case is really important as the decision is regarded as a significant development in commercial and insolvency law and gives legal certainty for corporate governance, director liabilities, corporate restructuring, etc.

3. Facts of the Case

The dispute involved Sequana SA (a French company) and its subsidiary company called AWA (Arjo Wiggins Appleton Ltd) that carries out their business in the paper manufacturing industry. The subsidiary company “AWA” operated in the state of Wisconsin in America. AWA operated corporate sites such as paper mills that caused substantial environmental harm and heavily polluted the Lower Fox River. As a result, AWA was liable for significant liabilities for environmental clean ups under the US environmental laws.

Although, AWA had ceased to operate to ensure no further pollution but since the river clean-up operation was a time-consuming project and the exact damage to the river could not be calculated quickly, there was uncertainty regarding the amount of potential liability. AWA held insurance policies that were expected to cover a substantial portion of any future claims, but the liabilities were highly unpredictable. Therefore, there remained a risk that the pollution liabilities may exceed the insurance coverage.

In May 2009, AWA had a director’s meeting to discuss company accounts and approved a dividend payment of 135 million from its surplus to its sole shareholders at Sequana SA which would clear AWA of the debt that was owed to Sequana. The payment was lawful under the law and the directors complied with the statutory laws set out in Part 23[4]. As a result of the payments made AWA was completely solvent both on the cash flow basis and the balance sheet.

Although the decision made in May 2009 was legal and based on the best expert advice, due to the unpredictable nature of the river clean up liability the company was exposed to the potential environmental liability in the future.  

After the 2009 decision, the costs for river clean-ups skyrocketed over the years and the liabilities were far beyond the cost estimations made by the company’s experts. The environmental liability cost caused the company huge financial distress and AWA could not meet their financial obligation to pay for the said liabilities and entered administration for insolvency.

Following this, BTI brought a claim for legal proceedings against AWA and argued that the AWA’s directors were aware of the risk of environmental claims, and they should not have decided to pay the dividend of 135 million to their parent company. The claimant (BTI) alleged that by paying the dividend the directors of AWA breached their fiduciary duty towards the company and also failed to consider the creditor’s interests[5].

BTI further asserted that the risk of potential future insolvency due to environmental liability was sufficient reason for the company’s directors to take the creditor’s interests into account and not pay the dividends to the sole shareholders.

4. Legal issues

The UK Supreme Court was presented with several significant questions regarding corporate and insolvency law specifically concerning “Creditor Duty” imposed on directors when a corporation has the potential risk of future insolvency. The Court addressed the following:

a. Whether there is a common law fiduciary duty on company directors under the English law requiring them to consider the creditor’s interests when making company decisions.  

1. If the said common law fiduciary duty exists, how is it related to the statutory fiduciary duty to promote the success of the company under s.172[6]. Does it override the statutory duty or preserves it.
2. When does the “Creditor Duty” arise? When is it triggered? Specifically, if the duty is triggered by a mere risk of insolvency in the future, when company is in insolvency or when the company has an imminent risk of insolvency.
3. Once a “Creditor Duty” is triggered how are the directors of the company supposed to balance their fiduciary duty towards the company and the shareholders’ interests with creditor’s interests. Whether director’s fiduciary duty towards the company’s shareholders is displaced once the duty is triggered.
4. Whether the AWA’s director’s decision to pay 135 million dividends to their parent company amount to a breach under the Companies Act[7].

5. Arguments Presented

5.1 The Appellant’s Arguments (BTI 2014 LLC)

The Appellant in this case argued that the directors of AWA had breached their fiduciary duty by paying the dividend of 135 million to the parent company (Sequana SA) whilst recognising the potential risk of contingent liabilities.

They further argued that even though the company was solvent at the time and the dividend payments were lawful under the Companies Act[8] there was a real risk of insolvency in the future due to the environmental liabilities, and the dividend distribution further increased the risk leaving the company vulnerable.

Arguments were also made suggesting that the directors of AWA had a duty to consider the creditor’s interest before the company went into administration for insolvency. As per the Appellants’ the duty was imposed on the directors of AWA when there was a foreseeable risk to the company’s assets or financial condition in the future. The said argument was supported by the Appellant using the case of West Mercia Safetywear Ltd[9]. The case asserts that directors of a company must consider the creditor’s interests when a company is under financial distress.

Lastly, the Appellant also argued that their assertions were under s.172 (3)[10], since the act expressly preserves the shift in director’s focus in certain circumstances such as when a company is facing financial difficulties.

5.2 The Respondent’s Arguments (Sequana SA)

The Respondent in this case stated that even though English law recognises that directors have a “Creditor’s Duty” in certain cases, they argued the duty was not imposed on the directors of AWA in this case and the duty did not rise considering the facts that the dividend followed part 23[11] and the that the company was solvent at the time of dividend distribution. Furthermore, they argued that they made the decision relying on the best expert advice at the time and a mere risk of potential future liability or risk of insolvency did not give rise to any duty.

They also stated that the duty only arises when there is a probable or imminent risk of future insolvency or when the company is actually insolvent. They also submitted that the liabilities related to the Fox river were uncertain and contingent, so there was no clear evidence inevitably showcasing the possibly of future liability or insolvency[12]. The Respondent believed that imposing the “Creditor Duty” on the directors of the company at an earlier date would cause confusion and would have adverse effects on the commercial decision making of the company.

The Respondent’s counsel furthermore scrutinized the Appellant’s use of the case of West Mercia Safetywear Ltd[13] by stating that in the said case is not of impact as in that case the duty was triggered when the company was already insolvent. Therefore, the case was not relevant to the case in question as insolvency was a mere risk and not ascertainable for AWA regardless of the expert opinion. The interpretation of “Creditor Duty” was therefore quite narrow in company law when the case was argued in courts.

Lastly, the Respondent in this case raised some policy concerns suggesting that imposing a duty on company directors based on a mere risk of potential future insolvency would disrupt a company director’s ability to make business decision due to the fear of personal liability and the company would suffer as a result as the company’s officials are scared to take entrepreneurial risks to maximise efficiency within reason.

6. Court’s Reasoning and Analysis

The UK Supreme Court meticulously examined the scope and nature of the “Creditor Duty” in this case and questioned importance of it from an English Commercial law standpoint. By doing so, the UK Supreme Court provided a detailed reasoning showcasing the balance between a director’s freedom to make commercial decisions and the protection of creditors.

The Court further affirmed that English law does accept that the directors of a company must take creditor’s interest into account under certain circumstances. The doctrine was longstanding and followed s.172 (3)[14] that solidifies preservation of common law doctrines concerning creditors. However, the Supreme Court clarified some ambiguity by stating that the creditors cannot sue the company’s directors for personal liability as the duty is not directly owed by or imposed on the directors.

The UK Supreme Court lastly analysed the language used in s.171 (1)[15], which imposes a duty on directors to promote the success of the company, but s.172 (3)[16] balances the said duty by necessitating directors to consider creditors interests[17].

       7. Judgment and Ratio Decidendi

The Court unanimously dismissed the claim brought by BTI and stated that the directors of AWA were not liable for 135 million dividend distribution to Sequana SA and there was no breach of fiduciary duty. Since there was no imminent or probable risk of future insolvency the directors did not have a duty towards creditors in the current case therefore defining the threshold for “Creditor Duty” under the English Company law[18].

       8. Critical evaluation

This case has a significant impact on how companies operate under the English legal system and provides some clarification on creditors. The Court’s decision to reject the notion of triggering creditor duty based on a mere risk provides certainty for the directors operating in the UK, but there still remains some uncertainty as the court did not give a definitive criterion that triggers “Creditor Duty”[19].

      9. Conclusion

BTI 2014 LLC [20] provided a monumental progress in the English Company law and made significant progress in providing some clarification on the scope of “Creditor’s duty”. The case asserts that the duty is triggered when there is a probable or imminent risk of future insolvency, but this does leave some room for uncertainty for the English courts to address in the future. Regardless, this case remains the leading authority and is the most recent development in company law concerning creditors.

Bibliography

Table of Cases

BTI 2014 LLC v Sequana SA and others [2022] UKSC 25

West Mercia Safetywear Ltd (in liq) v Dodd and another [1988] BCLC 250

Table of Statutes

Companies Act 2006

Other Sources

Case Summary: BTI 2014 LLC v Sequana SA and others [2022] UKSC 25’ (By Lawyers, 25 July 2023) < https://news.bylawyers.co.uk/s/blog-article/a63Tg0000000Po1IAE/case-summary-bti-2014-llc-v-sequana-sa-and-others-2022-uksc-25 > accessed 1 June 2026

Potts KC, ‘Supreme Court decision on “Creditor Duty”: BTI 2014 LLC v Sequana SA and others [2022] UKSC 25’ (39 Essex Chambers, 6 October 2022)< https://www.39essex.com/our-thinking/insights/supreme-court-decision-creditor-duty-bti-2014-llc-v-sequana-sa-and-others-2022/> accessed 1 June 2026

Walton, ‘Triggers, Content, and Enforcement: Directors’ duties to creditors – where are we after Sequana?’ (2024) 1 Wolverhampton Law Journal 1, 4 <https://www.wlv.ac.uk/media/departments/faculty-of-arts-business-and-social-science/documents/WLJ_Walton_Article.pdf> accessed 1 June 2026

[1] BTI 2014 LLC v Sequana SA and others [2022] UKSC 25

[2] Companies Act 2006

[3] West Mercia Safetywear Ltd (in liq) v Dodd and another [1988] BCLC 250

[4] Companies Act 2006, Part 23.

[5] BTI 2014 LLC v Sequana SA and others [2022] UKSC 25.

[6] Ibid, s.172.

[7] Ibid.

[8] Ibid.

[9] West Mercia Safetywear Ltd (in liq) v Dodd and another [1988] BCLC 250

[10] Companies Act 2006, 172 (3).

[11] Ibid.

[12] James Potts KC, ‘Supreme Court decision on “Creditor Duty”: BTI 2014 LLC v Sequana SA and others [2022] UKSC 25’ (39 Essex Chambers, 6 October 2022)< https://www.39essex.com/our-thinking/insights/supreme-court-decision-creditor-duty-bti-2014-llc-v-sequana-sa-and-others-2022/> accessed 1 June 2026

[13] West Mercia Safetywear Ltd (in liq) v Dodd and another [1988] BCLC 250

[14] Companies Act 2006, s.172 (3).

[15] Ibid, s.171 (1)

[16] Ibid, s.172 (3)

[17] Peter Walton, ‘Triggers, Content, and Enforcement: Directors’ duties to creditors – where are we after Sequana?’ (2024) 1 Wolverhampton Law Journal 1, 4 <https://www.wlv.ac.uk/media/departments/faculty-of-arts-business-and-social-science/documents/WLJ_Walton_Article.pdf> accessed 1 June 2026

[18] BTI 2014 LLC v Sequana SA and others [2022] UKSC 25.

[19] Case Summary: BTI 2014 LLC v Sequana SA and others [2022] UKSC 25’ (By Lawyers, 25 July 2023) < https://news.bylawyers.co.uk/s/blog-article/a63Tg0000000Po1IAE/case-summary-bti-2014-llc-v-sequana-sa-and-others-2022-uksc-25 > accessed 1 June 2026

[20] BTI 2014 LLC v Sequana SA and others [2022] UKSC 25