An overview of D&O fiduciary duties
The duty of loyalty
The duty of care
The business judgment rule
Fiduciary duties in times of insolvency
In a 2007 case, the Delaware Supreme Court held that creditors of a solvent corporation operating in the zone of insolvency do not have a direct claim against the corporation’s directors for breach of fiduciary duty. In other words, creditors are owed no special duties when a company is financially distressed, as opposed to actually insolvent. Although this ruling would seem to have resolved the issue, a number of questions and concerns remain. One of the principal unsettled points arises from the fact that it can be difficult and contentious to determine the exact state of a corporation – solvent or insolvent at a given point in time. Thus, even though it may be plainly stated that creditors are not owed fiduciary duties unless a corporation is insolvent, legally determining the point of insolvency is not as clear-cut. Further clouding the issue is the fact that other jurisdictions have either not yet opined or have opined affirmatively as to the question of whether fiduciary duties are owed to creditors by a corporation in the zone of insolvency. It is therefore essential for directors and officers of a corporation in financial distress to continue to adhere to good corporate governance practices and to seek additional advice and protective measures as necessary.