Creditors may sue directors of companies that can’t pay their debts, but the board members can protect themselves with the same provision that shields them from certain shareholder lawsuits, Delaware’s Court of Chancery ruled last month.
It’s long been settled in Delaware law that when a company is insolvent, the directors have fiduciary duties to their creditors. What’s been unclear in Delaware and most states is whether the so-called exculpatory provision—Section 102(b)(7) in Delaware’s corporation law—prevents creditors from suing directors for breaching their fiduciary duty claims, or not looking out for what’s in the creditors’ best interest.
