General corporate law delegates the power to manage a corpora-tion to the board of directors. The board, in turn, acts as a fiduciary and generally owes its duties to the corporation and its shareholders. Many courts and commentators summarize the board’s primary objective as maximizing shareholder wealth. Accordingly, one would expect a board’s conduct to be governed largely by the interests of the corporation and its shareholders.
Yet anecdotal and increasing empirical evidence suggest that large creditors wield significant influence over their corporate debtors. Although this influence is most apparent when a corporation approaches insolvency, often the strength of the creditors’ negotiating position is based on the terms of the pre-insolvency contract. Creditors typically obtain restrictive covenants and veto rights that allow them to assert control over various corporate actions. Nevertheless, the extent of creditor influence is hard to gauge accurately because it frequently materializes behind closed doors in negotiations between the corporation and creditors over refinancing terms, forbearance agreements, covenant waivers, or rescue financing.
This Article sheds some light on the nature and extent of creditor influence by examining creditor influence over corporate debtors and creditors’ committees in chapter 11 reorganization cases. Specifically, the Article reports and analyzes data from an empirical survey of professionals and individual creditors participating in the chapter 11 process. In many respects, the data confirm what commentators have gleaned from the terms of creditors’ contracts and activity documented on chapter 11 dockets: creditors are exerting greater influence over corporate decisions in the restructuring context.
Michelle M. Harner and Jamie Marincic, Behind Closed Doors: The Influence of Creditors in Business Reorganizations, 34 SEATTLE U. L. REV. 1155 (2011).