o sought repayment of creditors from both the directors of the corporate trustee and the beneficiaries o claimed the directors ran that company as an empty shell to defeat the Trust’s creditors and distributed the Trust’s funds to the detriment of those creditors. They were funnelling all the money to the beneficiaries and not paying off the trusts creditors first. o sought orders that the directors had breached the statutory and common law duties they owed to the company. Talking about the duties they owed to the company and not the trust or the beneficiaries. Court rejected the theory that the directors ran an “empty shell” to defeat creditors so there was no breach of statutory duty However, the directors were found to have made distributions to beneficiaries in priority to known creditors of the Trust – in breach of the common law duty not to give away assets of the company for the benefit of third parties (the beneficiaries) to the detriment of known creditors of the company. Because we are talking about a trust, the assets are actually owned, from a legal POV, by the company not the beneficiaries (who have beneficial title to them). The company can’t just go giving money away to people when it knows it has creditors that are defeated by that. The Court found that even though the distribution may have benefited beneficiaries, the directors still owed duties to the company to take account of the interests of the company’s creditors We haven’t found a direct duty to the beneficiaries yet, all we are saying is creditors here that needed to be looked after, yes they happen to be creditors of the trust because everything that the company did was on behalf of the trust, but from a pure legal standpoint, the company is doing those things in its own name even though it’s on behalf of somebody else. The direct route: United states • General partner and its directors owe duties (fiduciary) to limited partners: RE USA Cafes 600 A 2d 43 (Del 1991) USACafes General Partner Inc. was the general partner of USACafes, LP (the limited partnership) Metsa Acquisition Corp (Metsa) acquired substantially all of the assets of the limited partnership at a low price Limited partners brought a claim against the partnership, general partner and directors of the general partner, alleging that: o the directors of the general partner received substantial side payments that induced them to authorise the sale of the partnership assets at an unfairly low price that was favourable to Metsa o this breached a duty of loyalty or care that the general partner’s directors owed to the limited partners and the limited partnership The directors moved to have the claim dismissed on the grounds that while the general partner did owe fiduciary duties to the limited partners, the directors did not personally owe any duties to those persons Held: o The individual directors of a general partner did have direct fiduciary obligations to the limited partners, and the limited partnership o
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- Fall '19
- Corporation, Limited partnership, Types of business entity, the Limited Partnership