Brooklyn Journal of Corporate, Financial & Commercial Law


Philip Gavin

First Page



This Article draws attention to the difficulties that directors may face when seeking to discharge their duties as a corporation approaches insolvency, in particular when directors must discern the point at which a corporation has become insolvent. It argues that discretion allowed to directors by the business judgment rule will be crucial to overcoming these difficulties. To do this, this article examines the nature of duties owed by directors both before and after insolvency, and accepts the stance taken by Delaware courts in recent years towards an expansive understanding of a corporation’s interests upon insolvency. It then considers unresolved issues arising from how insolvency is defined and argues that the current view of insolvency as a bright-line threshold is overly simplistic and overlooks the multitude of metrics used to measure a corporation’s financial condition. In its stead, this Article posits that the business judgment rule provides sufficient latitude for directors to navigate commercial activity nearing insolvency.