Copyright (c) 1994 Delaware Law School of Widener University, Inc.
Delaware Journal of Corporate Law
GEYER v. INGERSOLL PUBLICATIONS CO.: INSOLVENCY SHIFTS DIRECTORS' BURDEN FROM SHAREHOLDERS TO CREDITORS
19 Del. J. Corp. L. 177
Stephen R. McDonnell
As a result of the continued increase in the number of corporations facing bankruptcy, 1 Geyer v. Ingersoll Publications Co. 2 may have a profound impact on the standard of corporate governance in Delaware, America's leading corporate state. In Geyer, the Delaware Court of Chancery held that directors of a corporation owe a fiduciary duty to the corporation's creditors upon "insolvency in fact" or at the moment its liabilities exceed the fair market value 3 of its assets. 4 Ambiguities created by the language applied by the court of chancery in Credit Lyonnaise Bank Nederland, N.V. v. Pathe Communications Corp. 5 left nervous directors of financially troubled Delaware corporations anxiously awaiting the Geyer decision. 6 In Credit Lyonnaise, the court of chancery implied that a director of a corporation which was in the "vicinity of insolvency" may owe a duty to the corporation's creditors. 7 This implication was ambiguous as to when a director's duty to creditors arises and was also ambiguous as to the standard by which a director's decisions are to be reviewed. The court in Geyer attempted to clarify these ambiguities.
Ingersoll Publishing Company evolved out of a partnership between the plaintiff, Thomas P. Geyer, and the defendant, Ralph Ingersoll, II. 8 Mr. Ingersoll was the controlling stockholder, president, and chairman of the new corporation; Mr. Geyer was an employee and the only other shareholder. 9 In the fall of 1988, Ingersoll Publishing used a $ 2 million note to repurchase ...
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