Volume 3, Issue 1

An important development in American corporate law is the recent explicit recognition, in a series of Delaware cases, that corporate managers owe a fiduciary duty of good faith in addition to their traditional duties of care and loyality. The duty of good faith was not created by those cases. On the contrary, the duty has long been explicit under the statutes and has also long existed implicitly in the case law. Nevertheless, the explicit recognition of the duty of good faith in recent Delaware cases shines a spotlight on that duty, and therefore makes it especially important to develop the contours of the duty and to examine the duty from a normative perspective. Briefly, the duty of good faith in American corporate law is comprised of a general baseline conception and specific obligations that instantiate that conception. The baseline conception consists of four elements: subjective honesty, or sincerity; nonviolation of generally accepted standards of decency applicable to the conduct of business; nonviolation of generally accepted basic corporate norms; and fidelity to office. Among the specific obligations that instantiate the baseline conception are the obligation not to knowingly cause the corporation to disobey the law and the obligation of candor even in non-self-interested contexts. Turning to the normative issue, there are several basic reasons why the duty of good faith is desirable. To begin with, the duties of care and loyalty do not cover all types of improper conduct by managers, because certain kinds of improper managerial conduct fall outside the spheres of those duties. Most of these types of conduct fall within the duty of good faith. Furthermore, various rules limit a manager's accountability under the duties of care and loyalty, and these limiting rules should be and are inapplicable to conduct that violates the duty of good faith. Moreover, the duties of care and loyalty characteristically (although not invariably) function as platforms for liability rules, while the duty of good faith characteristically (although not invariably) functions as a condition to the application of rules that do not in themselves impose liability. This difference in characteristic function makes it desirable to treat good faith separately from care and loyalty. Finally, the duty of good faith provides a principled basis for the courts to develop new specific fiduciary obligations that come to be seen as appropriate in response to changes in social and business norms, and in the general understanding of efficiency and other policy considerations that are applicable to corporate law, but cannot be easily accommodated within the duties of care or loyalty.

Regulatory competition between European company laws has become reality since the ECJ has opened the doors for free movement of companies under Art 43, 48 ECT. Several Member States have enacted reforms of their company laws since (e.g. France, Spain, Italy). In the UK, the Company Law Reform Draft Bill is on its way. Other states are still in the process of debate (Germany, Hungary). This article introduces the very advanced efforts of the Dutch legislator to modernise and simplify the law of private companies, following the proposals of an Expert Group chaired by the author.

Minority shareholders face particular difficulties where they seek redress against wrongdoing directors. This state of affairs seems to reflect an implicit acceptance both by the judiciary, the English Law Commission and the Company Law Reform Bill that it is somehow undesirable that companies should be exposed to civil litigation by minority shareholders (ie derivative actions). This type of thinking is rarely (if ever) made explicit; nonetheless, it is likely to continue being the primary policy impediment to enhancing the potential utility of derivative actions. The purpose of this article is primarily to inquire into these restrictive standing rules and subsequently to examine two policy responses to the problem that the company lacks an authentic decision-making body to determine whether or not a derivative action is in the best interests of the company as a whole.

In the much-anticipated decision of the Grand Chamber of the European Court of Justice (ECJ) in the SEVIC case, given 13 December 2005, the German rules governing (national) mergers were held incompatible with the fundamental freedoms. Some weeks earlier the European legislator adopted the 10 th company law directive on cross-border mergers. Whereas the Regulation on the European Company (SE) provides for cross-border mergers of public limited liability companies since late 2004, the 10 th directive extends this privilege to private limited liability companies. Until the national implementation of the latter, however, the fundamental freedoms might grant such right to private limited liability companies. Similar questions come up as regards to the outbound scenario, since the SEVIC case dealt with an inbound merger.