In Credit Lyonnais v. Pathe Communications, Chancellor Allen famously announced that the direction of a corporate manager’s fiduciary duty of loyalty “shifts” with the degree of her firm’s solvency. In the two decades since Credit Lyonnais, legal scholars have devoted numerous papers to the critique of its duty-shifting regime. These scholars have disagreed on normative grounds about how managers ought to resolve shareholder-creditor conflict. But almost universally they have agreed that the duty of loyalty represents our law’s statement of managerial fidelity.
This Article argues that the consensus interpretation of Credit Lyonnais has been misguided. Scholars have been wrong to assume as a positive matter that the law of fiduciary obligation holds the key to resolving shareholder-creditor conflict. In particular, this Article develops a theory of fraudulent transfer which suggests, in combination with a traditional, shareholder-focused conception of fiduciary duty, that legal doctrine has long promoted asset-value maximization as the managerial ideal. At least for those who favor a rule of asset-value maximization on normative grounds, the importance of Credit Lyonnais and subsequent decisions lies in their implications, largely ignored until now, about the ability of courts to enforce such a norm at reasonable cost. This Article takes up that question, arguing that, for closely held firms at least, Delaware’s skepticism about the prospect of judicial intervention is sound. For public firms, however, this Article shows how capital markets can provide valuable information about deviation from the asset value-maximization ideal, and consequently that courts should give less deference to managers in that context.