reached, in advance of any forced commencement of an insolvency procedure, by which point it can be too late to salvage the business. Taking early advice can also help mitigate any potential claims against directors if the company enters into a formal insolvency procedure. What have been some of the recent trends in liquidations that you’ve noticed, considering the current environment? What trends do you anticipate to see in 2023? The number of liquidations has started to rise, in comparison with the last few years when companies had the benefit of government support during the pandemic, through the furlough scheme and the availability of bounce-back loans (BBLs) and the coronavirus business interruption loan scheme (CBILS). The most recent set of insolvency statistics show that creditor voluntary liquidations are rising, currently at 37% more than in January 2020. Compulsory liquidations are also up, but are a much lower percentage of overall corporate insolvencies. Some commentators believe the current rise in insolvency relates to those companies which would have become insolvent in any event, but were given a temporary lifeline during Covid and are now choosing to shut up shop. I think we are yet to see the full impact of the cost-of-living crisis and inflated energy costs on insolvency numbers, especially as the threat of recession remains. I anticipate the retail, hospitality and construction sectors will be those most likely to struggle in 2023. What are directors’ duties in times of economic difficulty? Directors usually have to act in such a way as to promote the success of the company for the benefit of its shareholders. However, once the company begins to experience economic difficulty, their duties should shift towards putting the interests of the creditor body as a whole ahead of the members. The directors can be investigated by any subsequent liquidator or administrator for actions taken at this time, which can lead to personal liability for the directors and so any steps taken in the management of a company under economic stress should be carefully considered. The recent Supreme Court case of BTI 2014 LLC v Sequana SA gave greater clarity to directors as to when their duties shift from shareholders to creditors. This was held to be when the directors knew or ought to have known that the company was insolvent or close to it and that an administration or liquidation was probable. It was stated that the closer the company came to Bus i ne s s & Economy Finance Monthly. 20
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