Insolvency 2025

USA Law and Practice Contributed by: Davis Lee Wright, Natalie D. Ramsey, Katherine M. Fix and Rachel Jaffe Mauceri, Robinson & Cole LLP

7. Duties and Liability of Directors and Officers 7.1 Duties of Directors State and federal laws, business entity governing doc - uments and judicial decisions impose fiduciary duties on directors, officers and managers (DOMs), which are owed to the entity’s equity holders. At the federal lev - el, the Sarbanes-Oxley and Dodd-Frank Acts (along with other legislation) enhance these existing fiduci - ary duties, requiring DOMs of publicly traded com - panies to provide additional oversight and statutorily mandated certifications, especially when a company experiences financial distress. Fiduciary duties apply regardless of whether a com - pany is in an insolvency proceeding. DOMs may face personal liability if they breach these duties. While only owed to equity holders of solvent business entities, these duties expand when a company is insolvent to also include its creditors. While a 50-state survey of fiduciary duties governing DOMs of business entities is beyond the scope of this summary, each US state has codified some variation of the following. • Duty of loyalty – requires directors and officers to act in the best interests of the corporation and prohibits them from engaging in self-dealing or preferring their own financial interests to those of the corporation. The duty of loyalty also includes a duty of oversight. • Duty of care – requires DOMs to be fully informed of all material information reasonably available prior to making decisions affecting a business entity, with the degree of a reasonably prudent person in similar circumstances. • Other duties , including the duty of good faith and the duty of disclosure – these are subsets of the duties of loyalty and care. Fiduciary duties may arise statutorily, under a state’s jurisprudence, or, where state law permits, by contract or document, where a business entity’s by-laws or governing agreements either expand, restrict or elimi - nate certain traditional fiduciary duties. Unless state laws otherwise require, if a business entity’s govern - ance documents are silent regarding fiduciary duties,

6.3 Applicable Law Subject to 11 USC Section 1506’s public policy exception, US courts generally respect the decisions and procedures of foreign jurisdictions and tribunals. Section 1506 provides that “nothing in [Chapter 15] prevents the court from refusing to take an action gov - erned by [Chapter 15] if the action would be manifest - ly contrary to the public policy of the United States”. To date, this exception has been narrowly construed. 6.4 Recognition and Enforceability While a signatory, the USA has not ratified the Conven - tion of 2 July 2019 on the Recognition and Enforce - ment of Foreign Judgments in Civil or Commercial Matters. Moreover, no bilateral or multilateral treaties exist between the USA and any other country provid - ing for the reciprocal recognition and enforcement of judgments. Therefore, the recognition and enforce - ment of foreign judgments is generally a matter of state law, while recognition of foreign insolvency pro - ceedings occurs via Chapter 15. See 6.2 Jurisdiction . 6.5 Co-Ordination in Cross-Border Cases Chapter 15 aims to encourage co-operation between US courts and their non-US counterparts. US courts employ several procedures with varying degrees of formality to facilitate such co-operation and clarify the responsibilities and communication methods between each court. A bankruptcy court may appoint a person or entity to act at the direction of the bankruptcy court, enter into a cross-border protocol or cross-border agreement with a non-US court, or conduct joint hear - ings with a non-US court. Less formal arrangements include communication of information and develop - ments by methods considered appropriate by the bankruptcy court, including statements made on the record at the relevant proceedings by the parties-in- interest. 6.6 Foreign Creditors Foreign creditors are treated the same as domestic creditors.

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