Creditors Flashcards
Modern view of the corporation is that it is simply ____
a nexus of contracts
Under the modern view, corporate law’s goal is to facilitate ____ NOT ___
contractual transactions, defend ostensible ownership rights
DGCL 211 requires that the BOD ___
hold annual SH meetings
SH primacy is the idea that ___
business is organized and carried on primarily for profit of SHs
Under SH primacy, actions for SHs should be limited only by __
boundaries of contracts/regulations
The justification for SH primacy is that SHs have ___ while creditors ___
no legal means beyond fiduciary duties to get $ back, have contractually specified payments
SH primacy is justified on the basis that SHs have no right to __ or to __
dividends, withdraw principal investment
The stakeholder model (in contrast to SH primacy) is the idea that the BOD ___
should and does manage corp for the benefit of all stakeholders
The biggest blow to the Stakeholder Model is __
DGCL 362(a) public benefit corps
DGCL 362(a) suggests that corporations organized for a public benefit are ___
distinct from standard corps under DGCL
DGCL 362(a) strongly suggests that standard DE corps are not ___
to be managed for the public benefit
Stakeholder model advocates that SHs already have strong protection through ____
right to elect the BOD
Stakeholder model advocates argue that debt and equity are ___
equally important sources of funding
In DE, directors ___ fiduciary duties to creditors
DO NOT owe
Chancellor Allen came up with the idea of __
the zone of insolvency
The zone of insolvency idea comes from the fact that ___
SHs are more willing to gamble all of the company’s assets if close to insolvency instead of saving something for creditors
Because most claims ___ ultimately all constituencies become creditors
resolve into damages/financial claims
Gheewalla was ____ cause of action by creditors
direct
Gheewalla held that creditors cannot ___
bring direct claims for breach of fiduciary duties
Gheewalla reasoned that direct claims were prohibited because ___
other sources of law (contracts, bankruptcy) protect creditors
Gheewalla held that creditors MAY ___
bring derivative fiduciary duty claims against BOD of an insolvent corporation
Gheewalla held that until insolvency ___
SH have standing to bring derivative actions
MetLife Main facts
Defendants accepted leveraged buyout that significantly reduced value of plaintiff bonds
The MetLife plaintiffs argued that the company breached ____
implied covenant of good faith and fair dealing
How did MetLife plaintiffs argue that the buyout breached implied covenants
taking on additional debt allowing value of bonds to drop
One key fact from the MetLife case was that in the bond indentures there were express provisions that allowed ___
Defendants to merge, sell assets and assume additional debt
Even if a corporation is insolvent, creditors cannot ___
bring a direct action for fiduciary breach
The MetLife court didn’t read an implied covenant into the contract because __
can only be implied if court can assume parties would’ve included it (here it was expressly added later)
MetLife held that a debt security holder can only protect themself against borrower actions that may jeopardize ability to pay debt if ____
do so through contractual provisions
The MetLife court fixates on the fact that ____ in denying the implied covenant
the plaintiffs were sophisticated market participants AND company knew of risk associated with the bonds
The MetLife court holds that approving an implied covenant in this case would ___
confer on Ps a benefit they didn’t bargain for
One of the key issues in Ebay was that Jim and Craig wanted craigslist to ___
be a community service rather than purely profit-driven
In Ebay the Court used different ___
standards of review for each defensive device
Court says that being profit-driven is ___
necessity for DE corps not a culture choice
The poison pill in Ebay made it impossible for __
ebay to divest entire stake without consent of Jim and Craig
Ebay holds that Unocal requires directors to identify ___
proper corporate objectives served by their actions
Ebay holds that a Rights Plan will fall in the range of reasonableness if ___
BOD implements plan in good faith to maximize DH value
The Rights Plan in Ebay was not reasonable because ___
purpose to maintain community-culture, no evidence would increase SH profitability
Pistor suggests that it’s strange that the Court handles the Ebay measures ___ rather than ___
all separately rather than as a package, using one standard and then deciding if each measure was proportional
The Ebay court rejects the defendants’ ___ argument
Paramount
The staggered BOD in ebay was subject to __
BJR
The zone of insolvency argument was rejected in Gheewalla because the court believed that ___
in the zone need clear leadership directive
The parol evidence rule means that __
contractual silence does not create ambiguity
MetLife found that it was unwarranted to assume that the parties would’ve included the implied covenant because ___
expressly agreed to waive it
Piercing the veil of a corporation allows claimants to __
go after individual directors or parent company
You can pierce the corporate veil if ___
subsidiary treated as alter ego of the parent
Two factors for corporate veil test
- No corporate formalities
- Grave injustice if regarded as separate
The Ebay court was particularly hostile to the culture argument because ___
got $ from selling stake to ebay who wants to realize return on investment
The staggered BOD in ebay was subject to __
BJR
The staggered BOD in ebay was not preclusive because __
agreed upon consequence of ebay competing
The rational business purpose behind the staggered BOD was to __
to prevent confidential corporate info from being freely shared with a competitor
The dilutive stock issue in ebay was subject to ___
entire fairness (self-dealing)
Okabi held that the parent ___
controlled the subsidiary so much that parent should be liable
Okapbi held that if there is control then ___
duty of care
Okabi relied on agency principles that the principal is liable for agent’s actions in tort when ___
agent under control of principal and carrying out principal’s orders
Okabi found that RDS and its Nigerian subsidiary are ___
functionally only one business and the parent establishes the entire security framework
Under 122(8), SHs can now ___
K over BOD nominations and have pre-approval rights before decisions
What were the Vidanta factors that informed Okabi
(must have one)
- full takeover of management
- parent de facto advice/safety devices that are defective
- groupwide policies and active steps to implement measures
- parent holds out that they are in control
Okabi doesn’t use ___ and instead uses ___
piercing the veil, duty of care in agent-principal
Pistor thinks that if limited liability was ended __
corps would figure out how to price it
