Delaware Corporate Law and the 'End of History' in Creditor Protection
Fiduciary Obligations in Business, Forthcoming
24 Pages Posted: 10 Aug 2020 Last revised: 22 Jan 2021
Date Written: August 10, 2020
In this Chapter, we briefly survey the common law’s adventures with creditor protection over the course of American history with a special focus on Delaware, the most important jurisdiction for corporate law. We examine the evolution of the equitable doctrines that judges have used to answer a question that arises time and again: What help, if any, should the common law be to creditors that suffer losses due to the purported carelessness or disloyalty of corporate directors and officers? Judges have struggled to answer that question, first deploying Judge Story’s “trust fund doctrine” and then molding fiduciary duty law to fashion a remedy for creditors. In Delaware, the appetite of corporate law judges to protect creditors reached a high point in the early 2000s as judges flirted with recognizing a “deepening insolvency” tort cause of action. Suddenly, though, a new course was set, and Delaware’s judges effectively abandoned this project in a series of important decisions around the time of the financial crisis. In this “third generation” of jurisprudence, Delaware’s corporate law judges told creditors to look to other areas of law to protect themselves from opportunistic misconduct, such as bankruptcy law, fraudulent transfer law, and their loan contracts. However, as this Chapter illustrates, the same question of whether the common law ought to protect creditors has arisen time and again and today’s “settled” law is unlikely to represent the end of history in creditor protection.
Keywords: Corporate Governance; Bankruptcy; Fiduciary Duties; Corporate Restructuring
JEL Classification: K22; G33; G30; G34; K41
Suggested Citation: Suggested Citation