Summary
If a corporations directors fail to identify the pivotal point at which their company becomes legally insolvent, they can be held personally liable for breaching their fiduciary duties to the corporations creditors.
The Upshot
- A corporations directors owe a fiduciary duty to its lenders from the moment the corporation qualifies as legally insolvent.
- Determining when a company reaches the point of legal insolvency is highly nuanced and can vary by jurisdiction.
- Courts in all jurisdictions may use one or both of two tests, which can yield different results when applied to the same set of facts.
- The Balance Sheet Test examines whether a corporations liabilities exceed the reasonable market value of its assets.
- The Equity Test, whi…
Read the full article at: https://www.jdsupra.com/legalnews/determining-insolvency-a-critical-duty-3738782/