We begin with creditors because (1) creditors are the only constituency that still has some remnants of protections in corporate law, and (2) most other claims ultimately resolve into damages or other financial claims, transforming all constituencies into creditors at the end of the day.
Gheewalla sets forth the principle that creditors cannot invoke the protections of fiduciary duties against corporate directors (although they may occasionally have standing to enforce a derivative claim on behalf of the corporation). MetLife v. RJR Nabisco declines to protect the plaintiff-creditor under a contractual implied duty of good faith and fair dealing. The bottom line is that creditors have to rely on contractual protections. The MetLife decision reviews many customary protective clauses.
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|1||Show/Hide More||NACEPF v. Gheewalla (Del. 2007)|
The decision addresses, and you should look out for, two related but separate questions:
1. Who has standing to assert a fiduciary duty claim?
2. Whom is the fiduciary duty owed to, i.e., whose interests does it protect?
How might the answer to the second question have made a difference in this case? Whose interests were conflicting, and how, if at all, could the courts have adjudicated this conflict?
|2||Show/Hide More||Metropolitan Life Ins. Co. v. RJR Nabisco Inc. (SDNY 1989)|
MetLife, a very sophisticated creditor of RJR, claimed that the leveraged buyout of RJR by KKR was an entirely unanticipated event that violated RJR's implied duty of good faith and fair dealing towards its creditors. The court doesn't buy it. Do you?
Regardless, notice the striking contrast between the treatment of creditors and shareholders in this and other 1980s takeover cases. In MetLife, the court blesses a takeover that clearly reduced creditor value by billions of dollars without the deal-specific approval of creditors. At about the same time, Delaware cases empowered and even required boards to defeat takeovers in the name of “inadequate value” to shareholders even when the latter would have approved the deal. Does this make sense?
NB: The book Barbarians at the Gate tells the tale of the “bidding war” referred to in Judge Walker's introduction — it is a fun read.
December 07, 2017
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