Beyond Insolvency

Vincent S. J. Buccola

University of Pennsylvania - The Wharton School - Legal Studies & Business Ethics Department

December 16, 2013

62 Kansas Law Review 1 (2013)

In Credit Lyonnais v. Pathe Communications, Chancellor Allen famously announced that the direction of a corporate manager’s fiduciary duty of loyalty “shifts” with the degree of her firm’s solvency. In the two decades since Credit Lyonnais, legal scholars have devoted numerous papers to the critique of its duty-shifting regime. These scholars have disagreed on normative grounds about how managers ought to resolve shareholder-creditor conflict. But almost universally they have agreed that the duty of loyalty represents our law’s statement of managerial fidelity.

This Article argues that the consensus interpretation of Credit Lyonnais has been misguided. Scholars have been wrong to assume as a positive matter that the law of fiduciary obligation holds the key to resolving shareholder-creditor conflict. In particular, this Article develops a theory of fraudulent transfer which suggests, in combination with a traditional, shareholder-focused conception of fiduciary duty, that legal doctrine has long promoted asset-value maximization as the managerial ideal. At least for those who favor a rule of asset-value maximization on normative grounds, the importance of Credit Lyonnais and subsequent decisions lies in their implications, largely ignored until now, about the ability of courts to enforce such a norm at reasonable cost. This Article takes up that question, arguing that, for closely held firms at least, Delaware’s skepticism about the prospect of judicial intervention is sound. For public firms, however, this Article shows how capital markets can provide valuable information about deviation from the asset value-maximization ideal, and consequently that courts should give less deference to managers in that context.

Number of Pages in PDF File: 51

Keywords: fraudulent transfer, fiduciary duties

Open PDF in Browser Download This Paper

Date posted: August 9, 2013 ; Last revised: February 20, 2014

Suggested Citation

Buccola, Vincent S. J., Beyond Insolvency (December 16, 2013). 62 Kansas Law Review 1 (2013). Available at SSRN: https://ssrn.com/abstract=2296377

Contact Information

Vincent S. J. Buccola (Contact Author)
University of Pennsylvania - The Wharton School - Legal Studies & Business Ethics Department ( email )
3730 Walnut Street
Suite 600
Philadelphia, PA 19104-6365
United States
HOME PAGE: http://https://lgst.wharton.upenn.edu/profile/27349/

Feedback to SSRN

Paper statistics
Abstract Views: 693
Downloads: 112
Download Rank: 195,314