LA3021 Company law

Pre-exam update 2023

The current edition of the module guide was published in 2022.

The following developments should be noted.

CHAPTER 5: LIFTING THE VEIL OF INCORPORATION

5.3.2 The current legal position
Barclay-Watt v Alpha Panareti Public Ltd [2022] EWCA Civ 1169 is another case in which
the Court was reluctant to impose personal liability, in tort law, on company directors. A
company had been involved in marketing properties to potential investors, who were
encouraged to purchase them with Swiss-franc mortgages. These mortgages involved
substantial risks, which the company failed to explain to potential investors. The investors
suffered losses and sought to hold both the company and its managing director (AI) liable,
the latter on the basis that he was an accessory to the company’s own tortious conduct.
The Court of Appeal agreed with the trial judge that AI could not be held personally liable
in tort. The Court stressed again that, while it was important that tortfeasors should be held
personally liable for their torts, this had to be balanced against the importance of allowing
individuals to enjoy the benefits of limited liability. In this case, AI had had no personal
dealings with the investors, nor had he assumed any personal responsibility towards them.

CHAPTER 9: THE MANAGEMENT OF THE COMPANY

9.2.1 De jure, de facto and shadow directors
In Umbrella Care Ltd (in liquidation) v Nisa [2022] EWHC 86 (Ch), the court had to decide
whether someone had acted as a de facto director. The court noted how past cases had
focused on whether an alleged de facto director was ‘part of the governance structure of
the company’. The court noted that this test was less appropriate where a company was
being run on a more informal basis and where say board meetings might happen rarely or
never. In such a case, there was no real governance structure to examine. Instead, in such
cases it would be more appropriate to consider whether the alleged de facto director was
one of the ‘nerve centres’ of the company ‘from which its activities radiated’.

CHAPTER 10: DIRECTORS’ DUTIES

Section 10.2.1 Duty to promote the success of the company, s.172
The Supreme Court has now delivered its judgment in the case of BTI 2014 LLC v
Sequana SA [2022] UKSC 25. The court’s judgment confirms a number of points about
how the directors’ duty in s.172 CA 2006 changes once a company is in financial
difficulties. First, the Court found that, in such circumstances, the duty in s.172 is no longer
a duty to put the interests of shareholders first but instead requires greater – and
sometimes exclusive – weight to be put on the interests of a company’s creditors. Second,

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LA3021 Company law Pre-exam update 2023

the Court found that the duty changes only once the company’s financial difficulties are so
serious that insolvent liquidation is ‘probable’ (meaning more likely than not). Insolvent
liquidation need not be ‘inevitable’ for the duty to change but a mere risk of insolvency is
insufficient. Third, once insolvent liquidation was probable, then the weight to be given to
creditor interests would depend on the severity of the company’s financial difficulties.
Initially, the directors should balance creditor and shareholder interests. However, as the
company’s financial difficulties increase and insolvent liquidation becomes increasingly
more likely, the weight given to creditors should increase and, once insolvent liquidation
becomes not merely probable but inevitable, then creditors’ interests become paramount.

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