Who Is Running The Company? Secured Lender Influence over the Board of Debtor Companies.

Abstract

Commercially secured lenders may be tempted to interfere in the running of debtor companies. This thesis investigates to what extent directors? duties can act to potentially restrict that influence. It does this by providing a legal and theoretical argument that it would best for all participants if directors focus on maximising the wealth of the company as a separate legal entity. The entity focused approach requires directors to prioritise the interests of the company ahead of any stakeholders. Due to the implementation of a shareholder value approach, the board of directors of a company are currently limited in the approach they can take to such action with the duty to act ??in the interests of the company? ? being equated with the duty to act in the interests of the shareholders. However, with a reinterpretation from the Irish courts as to what it means to act ?in the interests of the company?, an entity focused approach can be implemented. It is submitted that there is a sufficient legal basis for the Irish courts to make this reinterpretation. If such an undertaking was made by the judiciary, the directors of a company would be in a position whereby they could take into account the interests of a secured lender and potentially prevent occasions arising where a secured lender would actively seek to engage in the running of the company. It is also submitted that by doing so there will be sufficient basis for the courts to extend director duties to such lenders and thereby directly link any actions they take in the management of the company with the fiduciary duties owed by the directors of the company.

In near insolvency situations a secured lender can exercise a degree of control over the board of directors of the company concerned, but they are not deemed to inhabit director status. This thesis argues for the extension of directors duties to such secured lenders via the position of shadow directorship. To do so, this thesis examines existing theoretical frameworks relating to stakeholder interest. It analyses the interpretation of the phrase ??in the interests of the company? ? and the potential to expand the interpretation. The current jurisprudence in relation to secured lenders is considered and contrasted with the role of nominee and shadow directors to determine the potential for fiduciary duties to restrain such lenders.