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The Ineluctably Absent Modality Of Creditor Derivative Claims

On Monday, I wrote about Berg & Berg Enterprises, LLC v. Boyle, 178 Cal. App. 4th 1020, 100 Cal. Rptr. 3d 875 (2009).  The Court of Appeal in Berg adopted the trust fund doctrine, holding that upon the actual insolvency of the corporations, "directors continue to owe fiduciary duties to shareholders and to the corporation but also owe creditors the duty to avoid diversion, dissipation, or undue risk to assets that might be used to satisfy creditors' claims".  

The operative pleading in Berg alleged a derivative claim for breach of fiduciary duty against the defendant directors.  The Court of Appeal affirmed the trial court's ruling that the plaintiff had failed to allege that the directors "improperly assigned assets for their own interests, or assigned assets knowing the assignee would breach its fiduciary duty to the creditors." 

Absent from the Court of Appeal's opinion is any discussion of what rule or statute applies to a creditor's derivative claim.  Section 800 of the Corporations Code sets forth detailed provisions governing actions instituted or maintained in right of any domestic or foreign corporation "by any holder of shares or of voting trust certificates of the corporation".  The statute makes no mention of creditors, leading to the question of whether Section 800 applies to such actions.  Arguably, it does because the creditors are essentially substitutes for the shareholders whose interests have been essentially zeroed out by the corporation's insolvency.  

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...