Distressed firms - The standards strategy - Directors
7 important questions on Distressed firms - The standards strategy - Directors
How are directors liable in case of insolvent company?
What are the different levels of intensity to affect the directors' incentives?
2. Negligence; worsening the financial position of the insolvent company by neglecting it
3. Enforcement: facilitated when the duties are owed directly to creditors, reduced for duties owed only to the company (unlikely unless bankruptcy)
What is the intensity dependent on?
- Shareholder creditor agency problems: managers and shareholders interests are closely aligned (directorial liability is most effective)
- Dispersed shareholders (larger firms): less incentive for directors to prefer shareholder interest over creditors.
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How does the intensity relate to the US and UK?
- Directors need to take "reasonable care" in protecting creitors
How does the intensity relate to Europe?
- Liability for negligence (when neglected)
- France and Italy: liability for failing to take action following serious loss of capital
How does the intensity relate to Japan?
- Japanese supreme court: oversight liability doctrine - under which non-executive directors are liable to creditors if they grossly fail to monitor misbehaving managers
"A director has a duty of care of a prudent manager in performing his duties"
How does the intensity relate to Brazil?
"It is the officer's duty to take all care that any ordinary man should employ in managing his own business, being personally responsible for negligence or misconduct in the performance of its acts (before that company and any third party)"
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