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U.K. Decision May Influence Canadian Directors Fiduciary Duty Regarding Creditors

November 09, 2022

Preet Gill speaks with Canadian Lawyer about how even though the landmark decision of The Supreme Court of the United Kingdom in BTI2014 LLC v. Sequana SA appears to fly in the face of Canadian law, directors may still feel its impact on the exercise of their fiduciary duty as it relates to creditors.

She says, “Canadian law is very clear that there is no point at which directors can disregard the best interests of the company as a whole in favour of creditors, but BTI says this can happen when a company faces ‘imminent insolvency.’”

Preet also says that BTI may not influence a shift in Canadian law regarding the substance of directors’ duties. “The BTI court considered the Canadian jurisprudence and stated that the U.K. had gone in a different direction than Canadian law, where directors owe a duty to the corporation as a whole.”

Still, she believes that BTI’s discussion of the various stages at which the creditor's duty arises and increases in significance may be a starting point for Canadian courts struggling to determine whether directors exercised their discretion properly in the face of insolvency.

“BTI . . . provides what I call a ‘sliding scale’ for determining when directors' duties change from balancing creditors’ interests against those of other stakeholders to treating creditors’ interests as paramount. And that may prove useful if and when our courts have to decide whether directors exercised their discretion regarding creditors appropriately. There may be more sensitivity to this issue given the increasing number of insolvencies we’re seeing as a result of the pandemic and the current economic climate.”

Key Contact

  • Preet K.  Gill Preet K. Gill, Partner

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