Financially Distressed Companies, Restructuring and Creditors’ Interests: What Is a Director to Do?

Abstract

It is a principle of UK law that when companies are financially distressed to the point of being insolvent or close to it the directors of such companies are required to take into account the interests of creditors. This is now codified in s.172(3) of the Companies Act 2006. In recent times there has been concern emitted by some commentators that directors might be unfairly held liable under s.172(3) for losses to creditors if a restructuring of a financially distressed company that they instituted failed. This paper examines whether such concerns are realistic and explores how directors should act if they decide to restructure their company’s affairs.