--- title: "Insolvent Company Directors’ Personal Liability: BTI v Sequana Explained" url: https://lexlaw.co.uk/solicitors-london/directors-duties-in-the-zone-of-insolvency-sequana/ date: 2026-09-16 modified: 2026-09-24 lang: en author: "Hamza Chaudhry" description: "If your company is struggling financially, your legal duties as a director change before formal insolvency begins. When does a company director's duty shift from shareholders to creditors? Following the Supreme Court ruling in BTI v Sequana, directors face strict legal consequences for decisions made during a company's financial distress. Learn the exact legal triggers for creditor duty and how to avoid claims for breach of fiduciary duty." categories: - "Company Insolvency" - "Court of Appeal" - "Director's Duties" - "Insolvency Litigation" - "Wrongful Trading" tags: - "BTI v Sequana" - "corporate insolvency" - "creditor duty" - "Directors Disqualification" - "Directors Duties" - "Misfeasance" - "s.172 Companies Act 2006" - "Wright v Chappell BHS" - "Wrongful trading" - "zone of insolvency" image: https://lexlaw.co.uk/wp-content/uploads/Directors-Duties-in-the-Zone-of-Insolvency-Sequana-1024x559.jpg word_count: 1311 --- # Insolvent Company Directors’ Personal Liability: BTI v Sequana Explained Making strategic decisions for a financially distressed company is one of the highest-risk actions a UK director can take. Following the Supreme Court’s milestone ruling in [*BTI 2014 LLC v Sequana SA* [2022] UKSC 25](https://lexlaw.co.uk/wp-content/uploads/BTI-2014-LLC-v-Sequana-SA-2022-UKSC-25.pdf), directors owe a modified fiduciary duty under [s.172 of the Companies Act 2006](https://www.legislation.gov.uk/ukpga/2006/46/notes/division/6/2) to put creditor interests ahead of shareholders long before formal liquidation or administration begins. This legal duty is triggered as soon as directors know, or ought to know, that the company is insolvent or bordering on insolvency. As highlighted by the massive financial penalties for misfeasance against former BHS directors in [*Wright v Chappell* [2024] EWHC 1417 (Ch)](https://lexlaw.co.uk/wp-content/uploads/Wright-v-Chappell-2024-EWHC-1417-Ch.pdf), the courts are applying *Sequana *strictly. This article breaks down when the creditor duty activates, how the "sliding scale" of liability works, and the critical practical steps directors must take to avoid personal exposure to wrongful trading and misfeasance claims. Our specialist insolvency solicitors explain the statutory triggers for creditor duty and outline essential boardroom protocols to protect your management team. ## Legal Framework: s.172 CA 2006 and the Creditor Duty The general duty in [s.172(1) Companies Act 2006](https://www.legislation.gov.uk/ukpga/2006/46/section/172) requires a director to act in the way they consider, in good faith, most likely to promote the success of the company for the benefit of its members. That primary duty is qualified by s.172(3), which preserves any enactment or rule of law requiring directors to consider or act in the interests of creditors. The common law rule preserved by s.172(3) traces to *West Mercia Safetywear Ltd v Dodd* [1988] BCLC 250, in which the [Court of Appeal](https://www.judiciary.uk/courts-and-tribunals/court-of-appeal-home/) held that a director of an insolvent company owes duties to the company's creditors. In [*Sequana*](https://www.bailii.org/uk/cases/UKSC/2022/25.html), the [Supreme Court](https://supremecourt.uk/) unanimously confirmed the continued existence of this creditor duty and clarified its trigger, content and scope. The duty is not a free-standing obligation owed directly to creditors. It is a modification of the fiduciary duty owed to the company. Once engaged, a breach cannot be ratified by shareholders. ## Validation Orders and Board Decisions in the Creditor Duty Window Directors of distressed companies routinely take decisions on dividends, remuneration and inter-company transfers at the precise moment the creditor duty is engaged. [Our dual-qualified Companies Court team](https://lexlaw.co.uk/our-people/) advises boards on Sequana compliance and, where a petition follows, obtains [validation orders under s.127 Insolvency Act 1986](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/validation-orders-solicitors-london/) to authorise essential post-petition payments. We act for directors from [statutory demand](file:///C:/Users/LEXUSER/Documents/Screenshot%202026-01-23%20151043.png) through to [Court of Appeal](https://www.judiciary.uk/courts-and-tribunals/court-of-appeal-home/). ## When the Creditor Duty is Triggered? ### The Sequana Trigger Test The critical question was the point at which the creditor duty is engaged. The Supreme Court rejected the appellant's argument that a mere real risk of insolvency was sufficient. The duty is triggered where the directors know, or ought to know, that: - the company is insolvent (on the cash-flow or balance-sheet test under [s.123 Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/section/123)) or is bordering on insolvency; - an insolvent liquidation or administration is probable; or - the transaction in question would place the company into either of those situations. The creditor duty in Sequana is triggered when directors know or ought to know that the company is insolvent or bordering on insolvency, or that an insolvent liquidation or administration is probable. A mere real but non-imminent risk of future insolvency is not enough to engage the duty. ### The Sliding Scale Once engaged, the duty operates on a sliding scale. Where insolvency is only probable, directors must balance creditor and shareholder interests, with the balance tilting progressively towards creditors as distress deepens. Where insolvent liquidation or administration is inevitable, creditors' interests become paramount and shareholders' interests cease to bear any weight. ### The Facts of Sequana The claim concerned a €135 million dividend paid by AWA to its parent Sequana SA in May 2009. AWA was then solvent on both cash-flow and balance-sheet tests, but held long-term contingent pollution liabilities of uncertain magnitude. AWA entered administration nearly a decade later. The Supreme Court held that a real but non-imminent risk of insolvency was not enough to engage the duty and dismissed the appeal. ### Creditor Duty vs Wrongful Trading The creditor duty and [wrongful trading](https://lexlaw.co.uk/solicitors-london/directors-exposed-to-personal-liability-in-the-twilight-period-insolvency-act-1986/) under [s.214 Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/section/214) are distinct. Wrongful trading requires the director to know, or to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation or administration. The Sequana duty arises earlier, when insolvency is merely probable. Directors can therefore face fiduciary liability well before wrongful trading is engaged, as illustrated by *Wright v Chappell* [2024] EWHC 1417 (Ch) and the quantum ruling at [[2024] EWHC 2166 (Ch)](https://www.bailii.org/ew/cases/EWHC/Ch/2024/2166.html), which produced record awards against former BHS directors. ## Practical Guidance: Directors in the Zone of Insolvency Where a company shows signs of distress, the directors should: - **Take specialist insolvency advice immediately.** Sequana liability is fact-sensitive and reviewed with the benefit of hindsight. [Early advice](https://lexlaw.co.uk/legal-case-assessment/) is a proportionate protective step and materially reduces exposure to later [directors' disqualification proceedings](https://lexlaw.co.uk/practice-areas/litigation-dispute-resolution-solicitors-london/company-directors-disqualification-proceedings-disqualification-orders/). - **Review solvency on both cash-flow and balance-sheet bases.** [Section 123 Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/section/123) sets the statutory tests. Contingent and prospective liabilities must be brought into account. Document the review contemporaneously. - **Minute every material decision.** Board minutes should record the directors' consideration of creditor interests, the alternatives weighed, and the reasons for the course taken. Contemporaneous minutes are the strongest evidence in later proceedings. - **Do not pay dividends or make distributions without a formal solvency review.** Sequana arose out of a dividend. Distributions in the zone of insolvency are prime clawback targets under [ss.238](https://www.legislation.gov.uk/ukpga/1986/45/section/238) and [239 Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/section/239). - **Engage with HMRC and other pressing creditors early.** Ignoring [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) increases the risk of a petition. Our [specialist HMRC tax disputes team](https://taxdisputes.co.uk/) advises on enforcement, and we regularly [defend and dismiss winding-up petitions](https://windinguppetitionsolicitors.co.uk/opposing-a-winding-up-petition/) at the [Rolls Building](https://www.judiciary.uk/about-the-rolls-building/). - **Consider whether professional advisers have failed you.** Negligent restructuring, insolvency or tax advice at the twilight zone can itself found a claim. Our [professional negligence lawyers](https://professionalnegligenceclaimsolicitors.co.uk/financial-negligence-claim-solicitor/) act for directors and companies against negligent accountants, IPs and advisers. ## How LEXLAW Can Help? Facing personal liability as a director of a distressed company is a high-pressure situation with severe commercial and reputational consequences. Our [specialist insolvency litigation solicitors and barristers](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/) act for directors, shareholders and creditors in matters of every complexity: Sequana-based board advice, defending [wrongful trading](https://lexlaw.co.uk/solicitors-london/directors-exposed-to-personal-liability-in-the-twilight-period-insolvency-act-1986/) and [misfeasance claims](https://lexlaw.co.uk/solicitors-london/practice-areas-defending-claims-brought-by-liquidators/), and directors' disqualification proceedings up to Court of Appeal level. Our work includes urgent [applications to restrain advertisement of a winding-up petition](https://windinguppetitionsolicitors.co.uk/restraining-injunctions-against-winding-up-petitions-and-advertisements/), [validation orders under s.127 Insolvency Act 1986](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/validation-orders-solicitors-london/), and defending post-liquidation claims brought by officeholders. [Early specialist advice](https://lexlaw.co.uk/contact-us/) materially improves outcomes: documented decisions taken in the zone of insolvency are far harder to unpick than those taken without them. ### Frequently Asked Questions **When does the creditor duty in Sequana arise?** The duty arises when directors know or ought to know that the company is insolvent, bordering on insolvency, or that an insolvent liquidation or administration is probable. A mere real but non-imminent risk of future insolvency does not engage the duty under the Supreme Court's ruling. **Is the creditor duty the same as wrongful trading?** No. Wrongful trading under s.214 Insolvency Act 1986 arises only where there is no reasonable prospect of avoiding insolvent liquidation or administration. The Sequana creditor duty arises earlier, when insolvency is merely probable, so a director may breach it well before wrongful trading is triggered. **What did Wright v Chappell decide about the BHS directors?** In *Wright v Chappell* [2024] EWHC 1417 (Ch), Leech J held two former BHS directors liable for wrongful trading and misfeasance. The quantum judgment [2024] EWHC 2166 (Ch) applied the Sequana duty in assessing compensation and produced awards which are among the largest reported to date. **Can shareholders ratify a breach of the creditor duty?** No. Sequana confirms that once the creditor duty is engaged, a breach cannot be ratified by shareholder resolution. This differs from ordinary breaches of duty owed only to the company, and reflects the creditor-protective policy underlying the West Mercia rule preserved by s.172(3) Companies Act 2006.