Here, we discuss the corporate governance implications corporate fiduciaries are confronted with when the corporation is operating in the zone of insolvency and when the company is actually insolvent. We also discuss some of the bankruptcy related issues concerning Delaware’s alternative business organizations (“ABOs”) specifically, limited liability companies (“LLCs”), limited partnerships (“LPs”) and statutory trusts (“DSTs”).
II. CORPORATE GOVERNANCE IMPLICATIONS UNDER DELAWARE LAWWHEN THE CORPORATION IS INSOLVENT OR OPERATING IN THE ZONE OF INSOLVENCY
a. Fiduciary duties owed to the corporation and its shareholders -
Charged with the task of managing a corporation’s business and affairs, directors owe to the corporation and its shareholders the fiduciary duties of care and loyalty. The duty of good faith is a subsidiary component of the duty of loyalty and, in like manner, the duties of care and loyalty subsume a duty of disclosure. As discussed in greater detail in a companion piece to this Article, corporate fiduciaries must act in good faith, on an informed basis and in the best interest of the corporation and its shareholders to satisfy their unremitting fiduciary obligations. These principles are well established in Delaware’s corporate law.
Originally published for the American Bar Association - Business Law Section Spring Meeting on April 10-12, 2014.
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