Everyone is Talking About Bankruptcy Directors

Florida State University Business Review (invited symposium article)

47 Pages Posted: 18 Mar 2024

See all articles by Robert Miller

Robert Miller

University of South Dakota, Knudson School of Law

Date Written: February 13, 2024

Abstract

The proliferation of bankruptcy directors represents a controversial shift in the corporate governance landscape. Delegating corporate decision-making to bankruptcy directors insulates conflicted transactions and claims from the traditional protections provided by derivative standing and entire fairness. However, critics have questioned their independence and cleansing effect. Are bankruptcy directors really independent when their role includes negotiation with and/or investigation into the same parties who appoint them? Should their decisions be given deference when their appointment is associated with lower recoveries for creditors? Bankruptcy directors’ salience is best illustrated by the numerous proposals made for evaluating their cleansing effect, including Professors Ellias, Kamar, and Kastiel’s ground-breaking evaluation. None of these suggestions, however, reflect the history of bankruptcy case control, the development of safeguards covering conflicted corporate governance in bankruptcy, and the realities of bankruptcy case administration.

This article applies those lessons to explain why bankruptcy courts should apply the entire fairness standard to evaluate whether bankruptcy directors have cleansing effect. A standardized protocol promotes disclosure while a heightened burden for approval reflects the structural bias endemic to bankruptcy directors’ relationship with the insiders who appoint them and the risk they pose to creditors.

Keywords: Bankruptcy, Restructuring, Corporate Governance, Conflicts of Interest

Suggested Citation

Miller, Robert, Everyone is Talking About Bankruptcy Directors (February 13, 2024). Florida State University Business Review (invited symposium article), Available at SSRN: https://ssrn.com/abstract=4723620 or http://dx.doi.org/10.2139/ssrn.4723620

Robert Miller (Contact Author)

University of South Dakota, Knudson School of Law ( email )

414 E Clark St
Vermillion, SD 57069
United States

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