Fiduciary Duties in Troubled Times


The recent economic tumult brings to the forefront the issue of fiduciary duties in the context of insolvency – an unfortunate circumstance faced by an increasing number of boards of directors and shareholders in these troubled times. The fact, or threat, of insolvency can dramatically alter the prism under which a director or controlling shareholder’s conduct will be scrutinized. Insolvency creates the circumstance where duties that are normally owed to shareholders may shift to creditors as residual owners of the corporation. Fiduciary duties can be owed to creditors by individual officers and directors, or by shareholders and parent companies, depending on the circumstances.

The purpose of this article is to briefly summarize the evolving law of fiduciary duties in the context of insolvency, and to highlight recent developments of which all business lawyers and litigators – and their clients – should be aware. Keep in mind, however, that the rules governing a particular director’s or shareholder’s duties must be analyzed under the appropriate governing state law and with respect to the documents memorializing the various relationships at issue. The discussion in this article primarily focuses on Delaware law, with some references to other jurisdictions, as well as their application in the federal courts. 

Presented to the American Bar Association Section of Business Law, August 1, 2009.

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