Unexpected Gifts of Chapter 11: The Breach of a Director's Duty of Loyalty Following Plan Confirmation and the Postconfirmation Jurisdiction of Bankruptcy Courts

Abstract

This article addresses the intersection of two aspects of chapter 11 jurisprudence: the fiduciary duties of directors and officers of the debtor and the post confirmation jurisdiction of bankruptcy courts. The article suggests that the normal application of fiduciary duties to confirmed debtors creates particular opportunities for directors and officers to act in a disloyal manner. The article examines two cases in particular. These include Bernstein v. Donaldson (In re Insulfoams, Inc.) and Cumberland Farms, Inc. v. Hasenotes (In re Cumberland Farms, Inc.) Traditionally, courts and commentators suggest that normal state fiduciary standards govern directors post confirmation. The article argues, however, that in certain scenarios directors may use the chapter 11 process to set the stage for disloyal behavior following confirmation of the plan of reorganization. In these instances, a federal, trustee-based standard of loyalty should apply to acts taken by directors post confirmation. The article also evaluates the various provisions of the Code that might permit a bankruptcy court to exercise post confirmation jurisdiction. The author notes that in his 2003 article, Resisting the Expansion of Bankruptcy Court Power, 35 Arizona St. L. J. 793 (2003), the author recanted his views of Section 105 of the Code, and acknowledged that this section is not a basis for post confirmation jurisdiction.

Keywords: bankruptcy, director, fiduciary, postconfirmation, post confirmation, confirmation, loyalty, insulfoam, bernstein, jurisdiction, trustee, chapter 11