SW Legal studies in Business

Directors Owe No Fiduciary Duty to Shareholders Claiming Creditor Status

Connecticut court dismissed a suit brought against directors and officers of a corporation by shareholders of a company who claimed they were creditors to the corporation. The court held that there could be no claim for breach of fiduciary duty in a case involving creditors as such duty is to the corporation, not to creditors.

Topic Business Organization
Key Words

Corporation; Directors; Fiduciary Duty; Shareholders; Creditors

C A S E   S U M M A R Y

The officers and directors of a Delaware corporation, NCT, were sued for breach of fiduciary duty and for violating the Connecticut Unfair Trade Practices Act (CUTPA) by engaging in unfair and deceptive business practices. The suit arose after a merger between Midcore and NCT, in which NCT was the surviving corporation. It later went bankrupt. Shareholders of the companies sued contending that the officers and directors did not pay them as much for their shares as they should have at the time of the merger. The shareholders contended that they were creditors of the companies and had been cheated by the officers and directors, so they were personally liable for damages. The officers and directors asked the court to strike the complaint.


Motion granted. The general rule is that whether a corporation is solvent or bankrupt, the directors do not owe a fiduciary duty to a corporate creditor that would expose them to personal liability to the creditor of an alleged breach of such duty. The officers and directors of a corporation owe their fiduciary duties to the corporation and its shareholders. Corporate creditors would bring suit for breach of contract or some other legal remedy. Hence, shareholders claiming creditor status cannot sue for breach of fiduciary duty. The claim that the CUTPA was violated is also dismissed. Shareholders have no standing to assert direct causes of action to benefit themselves for claims or injuries sustained by a corporation. The actions involved did not concern trade or commerce, they were internal to the corporation. Any cause of action must show a breach of duty to shareholders of the corporation in their status as shareholders.

Citation Metcoff v. Lebovics, 51 Conn.Supp. 68 (2009 WL 6428962, Super. Ct., Conn., 2009)

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