Moving Toward a Federal Law of Corporate Governance in Bankruptcy
Southern Illinois University Law Journal, Vol. 31, 2007
19 Pages Posted: 22 Jan 2009
State law control over the corporate governance of publicly held corporations is dying a slow death in bankruptcy at the hands of an overzealous Congress. Recent amendments to the Bankruptcy Code (the Code) push the state fiduciary law that governs the behavior of corporate directors and officers closer to irrelevance by making federal securities laws the strongly preferred means to find and hold accountable rogue managers of bankrupt corporations. This change in the corporate law began outside of bankruptcy. In the wake of the corporate scandals that erupted in the early 2000's, Congress adopted the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), which includes the most extensive and detailed corporate governance provisions enacted by Congress to date. In doing so, Congress acted on the belief that state law had failed to deter, prevent, and provide accountability for such business disasters and sought to provide federal legislation to insure that the Enron catastrophe, and those like it, would never occur again. By amending the Code with the same policy goals in mind, Congress not only adopted legislation that governs, more carefully than ever, the internal affairs of a corporation, but has paved the way for those regulations to remain forceful and relevant even after a bankruptcy case has been filed. The latest additions did not similarly provide for the effective application of state law corporate governance mechanisms.
Suggested Citation: Suggested Citation