Delaware Law and the “End of History” in Creditor Protection

What should a judge do when creditors claim that they were harmed by management and a board’s carelessness or disloyalty?  If the creditors were shareholders, the judge would apply fiduciary duty doctrines to determine liability.  Yet it’s unclear what legal doctrines offer creditors redress.  In a new chapter, we examine how judges have struggled with that issue over much of American history.  We pay special attention to the approach of judges in Delaware, the most important jurisdiction for corporate law.  We trace three generations of jurisprudence that each takes a different approach to whether judges should use equitable doctrines to … Read more

Bankruptcy Hardball

By many accounts, we have entered an era of unprecedented contentiousness in debtor-creditor relations.  For an example of the new status quo, consider the recent actions of PetSmart, a perfectly normal American corporation struggling with debt from a leveraged buy-out gone sour.  The textbook account of corporate governance would suggest that PetSmart’s board of directors would respond to this financial distress by seeking to improve the underlying business or, perhaps, by filing for Chapter 11 bankruptcy to maximize the value of the firm for the benefit of creditors.  Instead, PetSmart’s board authorized a transaction that seems shocking for a firm … Read more