Corporate financial uncertainties or troubles frequently require corporate directors to make difficult choices that affect shareholders, creditors and others having an interest in the corporation. In that situation, the question naturally arises: Do directors' duties change when a corporation is experiencing financial difficulties, is nearing insolvency or becomes insolvent? The short answer is that the fiduciary duties of corporate directors under Delaware and Texas corporate law do not change, but that the ultimate beneficiaries of those duties may shift.

With the state of the economy, some of your customers may be turning into slow pays or, worse, no pays.

In these uncertain times, boards of directors face many important decisions about a company’s present and future actions, including reduction or suspension of dividends, layoffs, asset sales, unsolicited takeover offers, liquidation and even insolvency proceedings. In making these decisions, directors should remember their overarching responsibility for continuing oversight and informed decision-making.

When the United States Court of Appeals for the Third Circuit decided Thabault v. Chait, 541 F.3d 512 (3d Cir. 2008), in September 2008, it was the most significant accounting malpractice decision of last year and perhaps the most significant damages case in the last 20 years. Why? Accounting malpractice cases are filled with pitfalls for unsuspecting plaintiffs. Moreover, accounting firms tend to settle cases in which the plaintiffs survive motions predicated on tried-and-true legal defenses and factual hurdles. The result is that few auditing malpractice cases are tried.

The United States Bankruptcy Court for the Middle District of Pennsylvania recently found that a bankruptcy trustee could not either pierce the corporate veil of a limited liability company to reach the owners of the LLC, nor could the trustee “reverse-pierce” the corporate veil of the owners of the LLC to reach a separate restaurant business that they owned.

After a relatively brief and checkered stint in Delaware courts, it appears that the cause of action against corporate directors for “deepening insolvency” may have lost its place in Delaware corporate jurisprudence.

Directors and officers managing corporations, especially when the corporation is insolvent or operating in insolvency situations, need to be cognizant of their fiduciary duties. This alert provides a brief overview of these fiduciary duties, including practical considerations in the exercise of these duties.

Fiduciary Duties When a Corporation is Solvent

In a 56-page opinion, the U.S. Court of Appeals for the Second Circuit sent a long-pending trade secrets case, Jasco Tools, Inc. v. Dana Corporation, Appeal No. 08-2762-bk, back to the lower court for further proceedings because of the bankruptcy court's "flawed application of well established summary judgment principles." (Slip Op.

The recent economic tumult brings to the forefront the issue of fiduciary duties in the context of insolvency – an unfortunate circumstance faced by an increasing number of boards of directors and shareholders in these troubled times.

In light of the possibility that several hundred FDIC-insured banks and thrifts may fail in the next two- to three-year period, many clients and friends of the firm have requested a summary of the legal concerns that arise for officers and directors immediately following the seizure of an institution by the FDIC, as well as steps that may be taken to be better prepared before a failure.