Communities and Collections

Shareholders, creditors, and directors' fiduciary duties: A law and finance approach

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  • Introduction: When a firm is on the verge of bankruptcy and the cash is almost gone, Wthe directors of the firm may be tempted to gamble the remaining cash on a very risky venture in hopes of striking it rich. After all, like the characters played by Demi Moore and Woody Harrelson in Indecent Proposal, when you are down on your luck, going for broke seems like a good option. If you win, you win big (just as in the movie), but if you lose, you were going to anyway. The directors of a paving company about to go bankrupt did just that when they withdrew the remaining cash from the company’s bank account and gambled it all in Las Vegas. They were not as fortunate as Demi Moore or Woody Harrelson (and probably not as good looking), and they were ordered to repay the cash to the creditors. From this extreme scenario, many courts and commentators have expressed concerns that, when corporations are the in the vicinity of insolvency, the directors may be tempted to engage in very risky business ventures that put the creditors’ assets at risk while fulfilling the shareholders’ desire for the one last hurrah.

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    Article (Published)
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    © 2007 Virgiia Law & Business Review Association. This version of this article is open access and can be downloaded and shared. The original author(s) and source must be cited.
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    • Valsan, R. D., & Yahya, M. A. (2007). Shareholders, creditors, and directors' fiduciary duties: A law and finance approach. Virginia Law & Business Review, 2(1), 1-52. Retrieved from
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