English High Court gives guidance on the so-called creditor duty where a company faces solvency-threatening claim

When a company is in the so-called “twilight zone” approaching insolvency, it is well-established that the directors’ fiduciary duties require them to take into account interest of creditors (the so-called “creditor duty”). In the recent decision of Stephen John Hunt v Jagtar Singh [2023] EWHC 1784 (Ch), the English High Court examined whether it is necessary to establish some form of knowledge (actual or constructive) of insolvency on the part of the directors for the creditor duty to arise, or whether the fact of insolvency is sufficient to trigger the duty.

The creditor duty was recently considered by the UK Supreme Court (“UKSC”) in BTI v Sequana [2022] UKSC 25 (see our previous update here). In that case, the UKSC confirmed the existence of the creditor duty and gave important guidance on the scope of a director’s duty to have regard to the interests of creditors. The UKSC nonetheless did not reach consensus on whether knowledge of the directors that the company is insolvent or bordering on insolvency is an essential element for creditor duty to arise. Continue reading