The Effects of Business Insolvency on the Duties and Liabilities of Directors and Officers — A Comparative Analysis With Recommendations to Promote Good Decision—Making

Abstract

Modern company laws have governance rules that are designed to promote good decision-making by a company’s directors and officers for the benefit of the company and its owners. In large part, this result is achieved by imposing fiduciary duties on these company managers. The rules concerning these duties have two important components that stand in tension with each other. First, they make the managers accountable for their actions and expose them to personal liability if they breach their duties. Second, modern rules about fiduciary duties also protect managers, so the fear of personal liability does not unnecessarily compromise their business judgment or lead them into making overly conservative decisions. Modern company laws strive to refine their system of director duties, so these two components are properly balanced.