This chapter starts by explaining that, when a company becomes factually insolvent but it is not yet subject to a formal insolvency proceeding, the shareholders – or the directors acting on their behalf – may engage, even in good faith, in various forms of behavior that can divert or destroy value at the expense of the creditors. Moreover, the individual behavior of certain creditors can also destroy or divert value in a situation of financial distress. For this reason, most jurisdictions around the world respond with a variety of strategies, including the imposition of special directors’ duties in the zone of insolvency. The chapter identifies six regulatory models for the design of directors’ duties in the zone of insolvency. After exploring the advantages and weaknesses of each regulatory model, the chapter analyzes a variety of country-specific and firm-specific factors that may affect the desirability of a particular regulatory approach. It concludes by suggesting various policy recommendations for the design of directors’ duties in the zone of insolvency taking into account the particular features of emerging economies.

In this Chapter, we survey the common law’s adventures with creditor protection over the course of American history with a special focus on Delaware. We examine the evolution of the equitable doctrines that judges have used to answer a question that arises time and again: What help, if any, should the common law be to creditors that suffer losses due to the purported carelessness or disloyalty of corporate directors and officers? Judges have struggled to answer that question, first deploying Judge Story’s “trust fund doctrine” and then molding fiduciary duty law to fashion a remedy for creditors. This reached a high point in the early 2000s as judges flirted with recognizing a “deepening insolvency.” Delaware’s judges effectively abandoned this project in a series of important decisions around the time of the financial crisis. In this “third generation,” judges told creditors to look to other areas of law to protect themselves from opportunistic misconduct, such as bankruptcy law, fraudulent transfer law, and their loan contracts. The question has arisen time and again and today’s “settled” law is unlikely to represent the end of history in creditor protection.