Incomplete Contracts, Contingent Fiduciaries, and a Director’s Duty to Creditors

Abstract

This article presents economic arguments for extending a limited form of fiduciary duty to creditors. It clarifies the two components of debtor-firm opportunism against creditors: director-opportunism and shareholder-opportunism. The analysis, carried out within the economic perspective of incomplete contracts, focuses on three elements: incomplete contracts, self-interest seeking individuals, and consequential ex post opportunism. The emphasis is on suggesting that the catalyst for a fiduciary duty is the presence of opportunistic behaviour, rather than arguing that it will depend on when a firm is in, near, or in danger of insolvency.