Directors' Duties to Creditors

There is case law to the effect that when companies are in financial difficulty directors owe a duty to take into account the interests of their companies' creditors. This article examines the primary reasons why contractarian theory, as applied by the law and economics school, is opposed to the existence of such a responsibility, namely it undermines efficiency and creditors can take measures in order to protect themselves adequately. The article asserts that efficiency cannot alone determine whether a duty should or should not be imposed on directors. Another critical value, fairness, must also be considered, and this value justifies the duty on the basis, inter alia, that many creditors are not able to protect themselves adequately, or at all by contracting, and are deserving of the limited protection that the duty would bring. In any event, it is submitted that a duty to creditors would enhance efficiency in some respects and warrants consideration on that basis

Actuarial science · Business · Creditor · Debt · Duty · Economics · Law and economics · Order (exchange) · Political science · Value (mathematics) · Accounting · Computer Science · Corporate Insolvency and Governance · Corporate Law and Human Rights · Finance · Law · Legal principles and applications

• Individual accountability for corporate harms

  Open Access•Joan Loughrey•Griffith Law Review•2024

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