Additionally, stating that the duties are owed to the corporation seems somewhat dissonant with the obligations under Brincat to communicate truthfully. Brincat selects communication with a particular constituency to be the subject of enhanced duties. Saying that the fiduciary duty runs simply to the corporation provides no guidance concerning the scope of the communications to which these duties appertain during distress.

Moreover, corporation law forms only part of the regulatory scheme governing distress, and it needs to be understood in the context of those other principles. Finding that there is a direct fiduciary duty owed to creditors of distressed firms allows courts to reverse some bad outcomes that would otherwise obtain under the in pari delicto doctrine and the Wagoner rule.

As background: Following Wagoner, courts have applied the in pari delicto principle to prevent a trustee’s assertion of claims against a third party professional who participated with the debtor’s former management in fraudulent conduct. The outcome these cases reach materially undercuts the ability of firms to engage third party professionals to monitor corporate misconduct under contractual arrangements that provide remedies for breach that are effective.

A more detailed explanation of these and other pertinent principles is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=846964, a paper which is forthcoming with the Ribstein work and other conference papers in the Journal of Business & Technology Law.