Elements of the obligations of directors of enterprise group members in the period approaching insolvency

• Author: United Nations Commission on International Trade Law
• Pages: 37-44

37

II. Elements of the obligations of

directors of enterprise group members

in the period approaching insolvency

A. The nature of the obligations

1. e underlying rationale of imposing obligations on directors in the proxim-

ity of insolvency is addressed in section one (chap. I, paras. 1-7), and remains

equally applicable in the enterprise group context. e obligations of directors

of an enterprise group member continue to be the same basic obligations as

established in recommendation 255, but it might be desirable for the law to

permit the broader context of the economic reality of the enterprise group to be

taken into account in determining the steps that should be taken by a director

to avoid liability for breach of those obligations. Relevant factors to be considered

might include the position of the enterprise group member in the enterprise

group, the degree of integration between enterprise group members (as men-

tioned in recommendation 217) and the possibility of maximizing value in the

enterprise group by designing a group insolvency solution to the enterprise

group’s nancial diculties that includes the whole enterprise group or some of

its parts. Group insolvency solutions may require a director of an enterprise

group member in nancial diculty to take steps that may appear, at rst glance,

to be detrimental to that enterprise group member, but that will ultimately

achieve a beer result for it and ensure the continuation of its business and

maximization of its value. Taking those same steps in circumstances where they

are not likely to benet the enterprise group member in nancial diculty may

expose directors to liability for failure to discharge their obligations reasonably.

2. One consideration for directors evaluating the steps to be taken to address the

enterprise group member’s nancial diculties is the impact of those steps on

creditors of that enterprise group member, especially when wider group interests

are to be accommodated. Recommendation 255 requires directors to have due

regard to the interests of creditors, as well as of other stakeholders of the enterprise

group member. e interests of creditors may be safeguarded by establishing a “no

worse o” standard – i.e., that creditors will be no worse o under the steps that

are taken than they would have been had those steps not been taken.