A Rejection of Absolutist Duties as a Barrier to Creditor Protection: Facilitating Directorial Decisiveness Surrounding Insolvency through the Business Judgment Rule
![handle is hein.journals/broojcfc15 and id is 329 raw text is: A REJECTION OF ABSOLUTIST DUTIES AS A
BARRIER TO CREDITOR PROTECTION:
FACILITATING DIRECTORIAL
DECISIVENESS SURROUNDING INSOLVENCY
THROUGH THE BUSINESS JUDGMENT RULE.
Philip Gavin*
INTRODUCTION
Fiduciary duties restrain the otherwise largely unfettered control of
directors in directing corporate activity. These duties are generally
conceptualized as being owed to the corporation for the ultimate benefit of
its shareholders.' As the scope of corporate legal reasoning expands, so too
have attempts to recognize the entitlement of interested parties other than
shareholders to invoke fiduciary protections.2 A significant hindrance to the
discharge of these potentially expansive duties within shareholder primacy is
judicial and regulatory emphasis on bright-line constructions of insolvency
whereby duties change only once the corporation has become insolvent.
This Article draws attention to the difficulties that directors may face
when seeking to discharge their duties as a corporation approaches
insolvency, in particular when directors must discern the point at which a
corporation has become insolvent. It argues that discretion allowed to
directors by the business judgment rule will be crucial to overcoming these
difficulties. To do this, this article examines the nature of duties owed by
directors both before and after insolvency, and accepts the stance taken by
Delaware courts in recent years towards an expansive understanding of a
corporation's interests upon insolvency.3 It then considers unresolved issues
arising from how insolvency is defined and argues that the current view of
insolvency as a bright-line threshold is overly simplistic and overlooks the
multitude of metrics used to measure a corporation's financial condition. In
its stead, this Article posits that the business judgment rule provides sufficient
latitude for directors to navigate commercial activity nearing insolvency.
* Adjunct Assistant Professor, School of Law, Trinity College Dublin. The author would like
to thank Professor Deirdre Ahern for her feedback on an earlier draft of this paper.
1. [T]he interests of the company as an artificial person cannot be distinguished from the
interests of the persons who are interested in it. Brady v. Brady (1987) 3 BCC 535, 547 (appeal
taken from Eng.).
2. Stakeholder theory is nothing new in corporate jurisprudence. See generally E. Merrick
Dodd Jr., For Whom Are Corporate Managers Trustees, 45 HARV. L. REV. 1145 (1932); A.A Berle
Jr., For Whom Are Corporate Managers Trustees: A Note, 45 HARV. L. REV. 1365 (1932).
However, there is a resurgence on the topic, some of which has occurred via statutory reform outside
the United States. See Companies Act 2006, c. 46 § 172 (UK); see also Christopher Brunner, The
Enduring Ambivalence of Corporate Law, 59 ALA. L. REV. 1385 (2008).
3. See Quadrant Structured Prod. Co. v. Vertin, 102 A.3d 155, 174 n.4 (Del. Ch. 2014); N. Am.
Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92 (Del. 2007).](ViewImageLocal?handle=hein.journals/broojcfc15&div=19&collection=&method=preview&ext=.png&size=3)
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