In a recent case, BTI 2014 LLC v Sequana SA & others, the High Court was asked to consider the circumstances in which the directors of a company are required to consider the interests of creditors and the extent to which the payment of a dividend by a company can be susceptible to challenge under section 423 of the Insolvency Act 1986 (IA 1986).

In this case, the payment of two interim dividends by the company (the “Company”) were disputed by the claimants, who argued that the accounts on which the directors relied were incorrect and did not give a true and fair picture of the state of the Company’s finances.  The claimants argued that the decision to pay both dividends was a breach by the directors of their fiduciary duties towards the Company as they should have had regard to the interests of Company’s creditors, given its financial situation.

The court decided in this case that the Company was not on the verge of insolvency or of doubtful insolvency, in a precarious or a parlous financial state but that the risk it faced was that the best estimate of its financial position would turn out to be wrong and that it might not have enough money, when called upon in the future.  The court noted that this is a risk faced by many companies that have provisions and contingent liabilities reflected in their accounts and was not enough to create a situation where the directors were required to run the Company in the interests of the creditors rather than the shareholders of the Company.

In addition, the court did not accept that anything could be inferred from an emphasis of matter which the auditors included in the financial accounts other than the auditors had concluded that the conditions set out in the accounting standard for when an emphasis of matter is appropriate had been satisfied, noting that the auditors had not qualified their audit report.

Thus, the court held that the creditors’ interests duty had not arisen at the time of the directors’ decision to pay.