Hunt v Singh: the lay of the land on director’s duties following Sequana

The English High Court decision of Hunt v Singh [2023] EWHC 1784 (Ch), or Hunt v Singh has provided the most substantive authority on directors' duties to creditors since the long awaited decision of the Supreme Court in BTI 2014 LLC v Sequana SA and others[2022] UKSC 25, or Sequana. Hunt v Singh specifically considered the point at which a director’s duty to take into account the interests of creditors arises.

The decision in Sequana was met with uncertainty and a degree of frustration among professionals in the insolvency industry. Indeed, it raised about as many questions for practitioners as it answered regarding the duty of directors to take into account the interests of creditors in certain circumstances.

Accordingly, insolvency practitioners waited with bated breath for the judgment of Hunt v Singh which they hoped would provide some clarity to the Sequana judgment – specifically in the context of whether the duty arises where a company is in fact insolvent, but the directors wrongly believe the liability giving rise to the insolvency has been effectively avoided.

Hunt v Singh

From 2002 until 2010, Marylebone Warwick Balfour Management Limited, or the company, entered into a scheme using employee benefit trusts to avoid incurring liabilities to HMRC for PAYE and NIC. However, liabilities were ultimately assessed in excess of £36m and in 2013 the company was placed into liquidation. Stephen Hunt of Griffins, liquidator of the company, advanced various claims against a number of directors.

At first instance, the directors were not found to be in breach of their duty to creditors, having entered into the scheme for genuine commercial reasons and in reliance of professional advice from their accountants. The purpose of the scheme was distinguished from the consequence. The liquidator then opted to appeal.

The appeal was, however, against one former director only, Mr Jagtar Singh, and only in respect of a claim to recover the amount received by him as a result of the breach of the creditor duty in the period from September 2005 to 2010.

In essence, the appeal focused on one particular question: whether, in the first instance, it was correct to conclude that the creditor duty had not arisen, in circumstances where the company was insolvent at the relevant time due to a tax liability which the directors incorrectly believed had been avoided.

When does the creditor duty arise?

In Sequana, the Supreme Court confirmed the existence of a duty to consider the interest of creditors when directors know, or ought to know, that the company is insolvent or bordering on insolvency, or that insolvency is probable.

In Mr Justice Zacaroli drew contrast with where the focus was on the time before the company was actually insolvent when the creditor duty arose, whereas here the company was insolvent throughout the relevant period. It was said that the company disputing liability to HMRC did not change that it was insolvent. A disputed liability was not a contingent liability. There was either a liability, or there was not, and as it turned out, there was an actual liability.