In today's email, we've got:

• a "momentous" decision from the Supreme Court

• why barristers have voted to stop striking

• lawyers putting their mental health first

EDITOR'S RAMBLE 🗣

You've seen it already haven't you? The halloween decorations are all around! But I promise the spookiest thing in this newsletter is the meme competition. Extra points if you can make your caption legal AND halloween-y. 🎃

- Connor

FEATURED REPORT 📰

🏅 Directors reporting for duty

Credit: Giphy

What's going on here?

The Supreme Court has ruled that a director of a company does owe a duty of care to a company's creditors (someone who's owed money by a company). However, this duty only arises if the company is likely to become insolvent.

What does this mean?

With the ruling in BTI v Sequana 2022 UKSC 25, the Supreme Court has given clear guidance on whether, and when, a director owes a duty to a company's creditors. The case involved the English company AWA and its parent company Sequana SA. In 2009, the directors of AWA had agreed to pay a dividend of €135m to Sequana SA in order to largely settle a debt that was owed between the two companies (did somebody say family drama?).

There was nothing wrong with the dividend itself. The issue was that the directors of AWA (the ones approving the payment) were aware that AWA had potential debts that they would have to settle related to historic pollution of a river in Wisconsin, US. They were unaware of exactly how much these debts would be or when they would be payable, but the key point is that they did know there was a significant risk there. Having said this, AWA did have insurance for those debts and, on paper at least, AWA looked solvent (meaning able to pay its debts). So everything seemed to be fine.

But, you guessed it, in 2018 AWA inevitably became insolvent. A number of the debts of the then-insolvent AWA were assigned to other companies to try and recoup. BTI was one of these companies, and it brought a claim against AWA, or more specifically Sequana as the parent company, to reclaim that €135m.

BTI argued that the directors were aware that insolvency was more likely than not at some point in the future, and as such owed a duty of care to company creditors. They said that the dividend payment was a clear breach of this duty. The Supreme Court disagreed...

What is the duty of care that directors owe?

The duty comes from the Companies Act 2006, specifically section 172(1). This says that:

"A director of a company must act in a way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole..."

This means that a director has to ensure that whatever actions they take must be for the good of the company's members. A company's members typically means its shareholders, but now, given the Supreme Court ruling, we know that its members can also be interpreted to include creditors.

When does the duty to creditors kick in?

You might be forgiven for thinking that the ruling means directors have to treat creditors like shareholders at all times, or at the very least when there is some danger of a company becoming insolvent. But the Supreme Court set out three clear conditions as to when creditors must be borne in mind. These situations are:

1. When the company is insolvent, or it is bordering insolvency;

2. When insolvency or administration is probable;

3. Where a transaction would place the company in either of the above two situations.

These conditions mean that the threshold has been set higher than was previously thought. In essence, the duty is not triggered when there is merely some possibility of insolvency, but when the risk is probable.

What impact will this have on the law?

The ruling has been labelled a momentous decision around directors' duties and marks a big step forward in English insolvency law.

In a time of economic uncertainty, when companies are at a higher risk than ever of insolvency, this provides some clear guidance as to what directors have to bear in mind when making important decisions. By engaging creditors' interests later in the process of potential insolvency, the Supreme Court seems to be advocating for a more rescue-focused culture. It gives directors a bit more flexibility and allows for other parties to lend financial aid, without having to put those parties' interests above the company generally.

Overall, this is good news for businesses (and bad for creditors). The decision keeps the sharks at bay for a while longer, and allows more time to get back on the right track.

A BIT OF FUN 😄

Meme caption competition!

Fancy putting your witty wits to the test?

Give us you best caption for the meme below!

All you need to do to submit your caption is reply to this email with your responses.

We'll post the meme with the best caption in one of our next newsletters! 👀

IN OTHER NEWS 🗞

• ✅ Barristers' strike comes to an end: Last week, barristers had gone on strike because the system of legal aid had resulted in huge cuts to their income. The results of the vote are in and the strike is over. 57% of the barristers voted to agree to the pay rise proposed by the government, subsequently ending the strike.

• 🧠 LawCare puts lawyers' mental health first: With it being World Mental Health Day yesterday (10th October) the legal mental health charity LawCare have been raising awareness through their "Tell Ten" campaign. The charity, which offers free, confidential, emotional support to anyone working in the law, including support staff and law students, has supported over 10,000 people since ints inception. Anyone working in the law in the UK, Channel Islands and Isle of Man can contact LawCare for free support.

• 🤝 Morrisons lines up its next course: Morrisons looks set to take over small convenience store chain McColl's. The grocery store giant has put forward a £190m takeover which is being considered by the Competition and Markets Authority (the CMA). There were initial concerns that the move could be seen as anti-competitive, but the CMA have said it could actually restore competition.

AROUND THE WEB 🌐

• 👀 Applications: The gang at TCLA have built this super handy application tracker.

• 🔍 Cool: A massive, searchable database of archeological finds discovered by the public in England and Wales.

• 🗞 Useless: Saudi Arabia is set to host the 2029 Asian winter games at their desert "megacity".

Credit: TCLA; Find; r/nottheonion/