Duties of Creditors
In the United States, directors and officers are substantially insulated from liability due to the protection of the corporate veil. Most state courts have determined that creditors’ only recourse in collecting outstanding obligations is limited to the terms of their contracts with the corporation. They have no privity to assert direct causes of action against corporate directors and officers. However, this protection is far from absolute. When a corporation publicly issues a debt obligation in the form of a corporate bond, debenture, or other debt securities instrument, and subsequently defaults on that obligation, its directors and officers face the same liability arising from misrepresentations to its creditors, as to its equity securities holders, referenced above. In addition, depending upon the state in which a company is incorporated, when a corporation is insolvent, the directors’ and officers’ duties and obligations to creditors can take on new priorities. In the case of American Catholic Educational Programming Foundation, Inc. v. Gheewalla, 2007 WL 1453705 (Del. May 18, 2007), the Delaware Supreme Court, which is perhaps the most significant court for U.S. corporate law, ruled that: “individual creditors of an insolvent corporation have no right to assert direct claims for breach of fiduciary duty against corporate directors.” This extends to preclude creditors from bringing direct or indirect claims against corporate directors when a company is in the zone of insolvency. However, the Delaware Supreme Court recognizes a creditor’s right to step into the shoes of the shareholders in the event of corporate insolvency. Thus, creditors have standing to maintain derivative claims against directors of insolvent companies for breaches of fiduciary duty. Further, creditors may seek tort liability against directors or officers personally, in the context of insolvent or bankrupt companies. In such situations, the stay provisions of the U. S. Bankruptcy Code may not apply to solvent parties connected to the debtor corporation.[1]
Under Washington State law, personal liability against former corporate directors and officers of bankrupt companies may be imposed for unpaid wages. Punitive damages and attorney fees may also be assessed where any employer willfully and with intent deprives the employees of any part of their wages.[2] In Morgan v. Kingen, 210 P.3d 995 (Wash. 2009), the Washington Supreme Court ruled that: “[T]he payment of wages holds a preferential statutory position, highlighted by the imposition of personal liability for exemplary damages, costs, and reasonable attorney fees as a penalty for the willful failure to pay wages owed.
[1] Oklahoma Federated Gold and Numismatics, Inc. v. Michael W. Blodgett, Defendant, 24 F.3d 136, (10th Cir, 1994)
[2] RCW 49.52.050 and RCW 49.52.070 respectively sets out the criminal and civil penalties
Under Washington State law, personal liability against former corporate directors and officers of bankrupt companies may be imposed for unpaid wages. Punitive damages and attorney fees may also be assessed where any employer willfully and with intent deprives the employees of any part of their wages.[2] In Morgan v. Kingen, 210 P.3d 995 (Wash. 2009), the Washington Supreme Court ruled that: “[T]he payment of wages holds a preferential statutory position, highlighted by the imposition of personal liability for exemplary damages, costs, and reasonable attorney fees as a penalty for the willful failure to pay wages owed.
[1] Oklahoma Federated Gold and Numismatics, Inc. v. Michael W. Blodgett, Defendant, 24 F.3d 136, (10th Cir, 1994)
[2] RCW 49.52.050 and RCW 49.52.070 respectively sets out the criminal and civil penalties