When It’s Over…

Let’s face it, a majority of startups fail. So, as a director, to whom do you owe your duties when the company becomes insolvent (the definition of which can be subject to interpretation)?

According to a recent article in the ABA Business Law today, the authors believe that:

” The Delaware Supreme Court in North American Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92 (Del. 2007), held that while fiduciary duties are always owed to the corporation and its shareholders, and creditors are owed no special duties when the company is financially distressed (i.e., zone of insolvency), once the company is actually insolvent, fiduciary duties are owed to the corporation as an “enterprise” with the creditors taking the place of shareholders as the principal constituency.”

Read the analysis here: http://www.americanbar.org/publications/blt/2015/07/03_hayes.html


About JeffKoeppel

I am a corporate/securities attorney in the Washington, DC area. Prior to joining the firm, I was a Senior Attorney Advisor in the Division of Corporation Finance at the U.S. Securities and Exchange Commission. I am a member of the Bars of the States of Maryland, New York and the District of Columbia. You can also follow this blog on LinkedIn at: http://www.linkedin.com/pub/jeffrey-a-koeppel/0/63/5a9
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