## Facts

- The case concerned the duties of directors in circumstances where a company is insolvent or approaching insolvency.
- It addressed the legal position when a company was experiencing financial distress, ongoing trading losses, inability to meet financial obligations, or reliance on external funding.
- The judgment highlighted the shift from prioritising shareholder interests to focusing on creditor interests as a company's financial state worsens.
- Directors' management of company affairs during this "twilight zone" of financial distress was central to the case.

## Issues

1. When does the duty of directors to consider the interests of creditors arise?
2. How should directors define and identify the point at which a company is "near insolvency"?
3. What are the consequences for directors who fail to consider creditor interests during severe financial difficulty?

## Decision

- The court held that the duty to consider creditors' interests arises when a company becomes insolvent or is on the verge of insolvency.
- Directors cannot prioritise shareholders’ interests over creditors’ interests once insolvency or near-insolvency is apparent.
- Directors must thoroughly review transactions and company decisions during financial distress to avoid prejudice to creditor claims.
- Directors may face personal liability if their failure to observe these duties causes loss to creditors.

## Legal Principles

- Directors’ duties shift toward the interests of creditors as soon as insolvency or near insolvency is impending.
- No fixed definition of "near insolvency" exists; several indicators—including trading losses and inability to meet obligations—are relevant.
- Directors must undertake an objective assessment of the company’s financial status, considering both current and future cash flows.
- Failure to consider creditor interests may expose directors to personal liability, especially regarding wrongful trading under later legislation (Section 214 of the Insolvency Act 1986).
- The case established a foundational precedent followed and developed by later insolvency decisions.

## Conclusion

Re Produce Marketing Consortium Ltd [1989] BCLC 520 established that directors must consider the interests of creditors once a company is insolvent or nearly insolvent, with personal liability possible for disregard of these duties, providing essential guidance on directors' responsibilities during financial distress.
