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June 24, 2009
Liability of Government Director Nominees
Vice Chancellor Lamb of the Delaware Chancery Court noted recently in a pubic speech that government director nominees "should be treated like anyone else (other directors)" when fidicuiary duty standards are in issue. This is the tip of the iceberg, of course. The statement is a reaffirmation that the directors will be responsible to all shareholders, not just the government, in their board actions. This will test government nominees ability to answer to both the government (which may have objectives other than a firm's profits in mind) and to equity investors (who are primarily interested in profits). But liability will be another matter. Can the director nominees be personally liable? They are subject to the court's injunctive powers, but are they subject to damages for official actions? Their immunity as government actors will be tested. Second, is the government as prinicipal liable for the nominees actions that may injure other shareholders? The hazy area of liability of controlling shareholder for the actions of borad nominees, not yet fully developed in the case law, will be in issue as well the sovering immunity of the government itself? Has the government waived its liability for the actions of the nominees? (See, e.g., the Federal Tort Claims Act). Plaintiff's lawyers will be busy, as the government is an obvious potential deep pocket in shareholder derivative actions. I would suggest to all government director nominees that, before they accept the position, they get good advice on their personal exposure to private lawsuits.
June 24, 2009 | Permalink
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Comments
It seems to me that if we can so easily rewrite the law of contracts and rewrite the bankruptcy laws, why should it be so difficult to rewrite the laws surrounding the fiduciary duties of directors to exempt some of them and the powers that appoint them from any responsibility whatsoever.
'Tis indeed a slippery slope upon which we find ourselves.
Posted by: Steve Scott | Jun 24, 2009 5:28:40 PM
Mr. Scott's question is a Catch 22
If the Law applies - then his question goes beyond rhetorical.
As it implies that the LAW is applied "ad hoc" (which I most certainly agree - in DE BK realms)
Then it is madly axiomatic.
For one cannot have any logical framework (either question or answer)
When all rules are subject to the power center of the day.
Which is really how DE works - and the Government as well!
Posted by: Laser Haas | Jul 6, 2009 12:26:21 PM
I think somebody needs to explain, precisely, how BK and contract law has been "rewritten" without simply resorting to rhetoric, for example, about how the government has "abused" the process or how "that's not what 363 sales were intended for."
The way I see it, the only entity capable or willing to provide financing to the car companies through BK (i.e., the government) exercised its leverage to get what it wanted out of the process.
You can argue that this is not what the government should have done, that it should have provided the finance with different conditions, or favored constituents differently or not at all or should have stayed out, but it put its (I know, our, that is, the taxpayers') money on the line and asked for its own conditions. Fine, maybe there was some other pressure somewhere on creditors not to fight the process and to go along with the plan. But I question how real or practical that was and in any event, the money was the determinant. With BK financing, each automaker remained in operation, making the assets more valuable than they would have been in a (surely drwan-out) litigation and even with reduced stakes (compared to liquidation), the creditors saw some more (maybe limited) value.
Without government BK money, where would the car companies be? I am not saying they are better off now, but it sure seems like the ONLY alternative to what the government did was liquidation. I don't really think that contract or BK law was "rewritten" or inconsistently applied "on an ad hoc basis" such that creditors were much worse off, if at all, than they would have been in liquidation.
Maybe the numbers bear out a different result, but nobody argues numbers, usually just rhetoric, and liquidation value is VASTLY different from going concern value.
(Please do not read this post as angry or personally disparaging to anyone's views; it is not intended that way, and I hope it does not read that way; intended to be a direct but matter of fact retort to complaints made here and elsewhere.)
Posted by: Steve | Jul 8, 2009 12:07:46 PM
I think somebody needs to explain, precisely, how BK and contract law has been "rewritten" without simply resorting to rhetoric, for example, about how the government has "abused" the process or how "that's not what 363 sales were intended for."
The way I see it, the only entity capable or willing to provide financing to the car companies through BK (i.e., the government) exercised its leverage to get what it wanted out of the process.
You can argue that this is not what the government should have done, that it should have provided the finance with different conditions, or favored constituents differently or not at all or should have stayed out, but it put its (I know, our, that is, the taxpayers') money on the line and asked for its own conditions. Fine, maybe there was some other pressure somewhere on creditors not to fight the process and to go along with the plan. But I question how real or practical that was and in any event, the money was the determinant. With BK financing, each automaker remained in operation, making the assets more valuable than they would have been in a (surely drwan-out) litigation and even with reduced stakes (compared to liquidation), the creditors saw some more (maybe limited) value.
Without government BK money, where would the car companies be? I am not saying they are better off now, but it sure seems like the ONLY alternative to what the government did was liquidation. I don't really think that contract or BK law was "rewritten" or inconsistently applied "on an ad hoc basis" such that creditors were much worse off, if at all, than they would have been in liquidation.
Maybe the numbers bear out a different result, but nobody argues numbers, usually just rhetoric, and liquidation value is VASTLY different from going concern value.
(Please do not read this post as angry or personally disparaging to anyone's views; it is not intended that way, and I hope it does not read that way; intended to be a direct but matter of fact retort to complaints made here and elsewhere.)
Posted by: Steve | Jul 8, 2009 12:08:05 PM
