For the most part, directors and officers can discharge their duties to creditors by acting diligently and with the best interests of the corporation in mind and by using measured and prudent judgment in all matters.
Fiduciary Duties of Directors and Officers in Florida Under applicable Florida corporate law, a director must perform his or her corporate duties 1) in good faith; 2) with such care as an ordinary prudent person in a like position would exercise under similar circumstances; and 3) in a manner the director reasonably believes to be in the best interests of the corporation.
The first duty, the duty of good faith, is general and requires that directors and officers act at all times with honesty of purpose and in the best interests and welfare of the corporation.
They apply in all actions taken by officers and directors in connection with the corporation.
Insolvency and the Vicinity of Insolvency — Fiduciary Duties to Creditors In Florida, officers’ and directors’ fiduciary duties are extended to the corporation’s creditors when the corporation is insolvent or is in the “vicinity of insolvency.” Making decisions rashly or such that directors and officers benefit from transactions at the expense of the corporation — and thereby its creditors — will, in most cases, constitute a breach of the fiduciary duties.
Examples of transactions that could violate the fiduciary duties of directors and officers while a company is insolvent and fiduciary duties are owed to a corporation’s creditors are 1) transferring corporate assets allowing the directors and officers to recover a greater percentage of debt than the corporation’s creditors; 2) preferential transfers of the corporation’s assets; 3) actions that dissipate or unduly risk corporate assets that might otherwise be used to pay creditor claims; 4) under certain circumstances, incurring additional debt., an LLC/franchisee experienced economic difficulty and fell behind in its payments to a franchisor/creditor. 2008), involved a technology company that experienced significant financial distress after the dot-com bubble burst in the early 2000s.
The LLC’s principal caused it to enter into an agreement under which the LLC transferred its franchise rights, valuable real-estate listings, and commissions to the franchisor in full satisfaction of the past-due obligations. Bridgeport’s directors and officers did little to correct the company’s course and only hired a restructuring advisor at the insistence of the company’s secured lenders and after it was arguably too late.
However, it may not be as obvious that directors and officers cannot discharge their duties to creditors by entrusting certain insolvency-related management decisions to an independent restructuring advisor. Bridgeport’s directors made no substantial effort during the due diligence and negotiation period to identify other potential buyers or otherwise vet the proposed sale.
After the sale was consummated, Bridgeport entered into Ch.
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