Abstract

Recent corporate failures indicate that existing laws fail to give boards of directors adequate incentives to acknowledge that some financially troubled firms simply cannot be salvaged. Relying primarily on insights from law and behavioral science literature, this Article notes that directors have a natural tendency to underestimate risks and overestimate their ability to save an insolvent or near insolvent firm. This Article urges the imposition of a duty to file a timely bankruptcy petition because such a duty will encourage directors to consider the interests of all the firms' constituents, including workers, creditors, and the local community, when making decisions for a financially troubled firm. This Article argues that directors of insolvent firms that fail to protect firms by placing them under the protection of federal bankruptcy laws should be sanctioned in the firm's subsequent bankruptcy.

Document Type

Article

Publication Information

38 Wake Forest Law Review 1-54 (2003)

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