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    The Expressive Function of Directors’ Duties to Creditors

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    Genre
    Journal article
    Date
    2007
    Author
    Lipson, Jonathan C.
    Subject
    Fiduciary duties
    Powers and duties
    Laws, regulations and rules
    Corporate directors
    Debtor and creditor
    Creditors
    Corporate reorganization
    Corporate governance
    Directors
    State court decisions
    Fiduciary responsibility
    Stockholders
    Bankruptcy
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    Permanent link to this record
    http://hdl.handle.net/20.500.12613/6668
    
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    DOI
    http://dx.doi.org/10.34944/dspace/6650
    Abstract
    This Article offers an explanation of the doctrine of directors' duties to creditors. Courts frequently say - but rarely hold - that corporate directors owe duties to or for the benefit of corporate creditors when the corporation is in distress. These cases are puzzling for at least two reasons. First, they link fiduciary duty to priority in right of payment, effectively treating creditors as if they were shareholders, at least for certain purposes. But this ignores the fact that priority is a complex and volatile concept. Moreover, contract and other rights at law usually protect creditors, even (especially) when a firm is distressed. It is thus not surprising that courts do not in fact want to treat directors as fiduciaries for creditors, except in extreme cases. But this leaves us with the second puzzle: If directors are rarely treated as fiduciaries for creditors, why have the Delaware courts bothered to say so much about this, especially in their recent opinions? This Article explores these two puzzles, and argues that these cases are best understood as examples of expressive judging, exhortations to good behavior not necessarily tethered to meaningful instrumental consequences. It identifies four expressive themes in these decisions on, among other things, director discretion, the boundaries of acceptable conduct towards creditors, the role of contract, and the educative function of courts. The Article concludes by noting several doctrinal gaps created by some of the recent case law, and suggests ways that the better expressive aspirations of the Delaware opinions can fill these gaps in fair and efficient ways.
    Citation
    Jonathan C. Lipson, The Expressive Function of Directors’ Duties to Creditors, 12 Stan. J. L. Fin. & B. 224 (2007).
    Citation to related work
    Stanford: Stanford Journal of Law, Business & Finance
    Has part
    Stanford Journal of Law, Business, and Finance, Vol. 12, No. 2 (Spring 2007)
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