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Shift Of Fiduciary Duty Upon Corporate Insolvency: Proper Scope Of Directors' Duty To Creditors, Laura Lin

Vanderbilt Law Review

In the wake of the debt binge of the 1980s, the number of financially distressed corporations has increased dramatically.' Because a struggling company rarely ceases operations overnight, directors still need to make investment and operational decisions concerning the best use of the company's existing assets. This need remains whether the firm will regain profitability or will be liquidated. Financial distress also intensifies conflicts of interest between shareholders and creditors. Indeed, when these constituencies are unable to recover their investments in the corporation because of insufficient assets, both shareholders and creditors have incentives to maximize their individual returns regard- less of …