Introduction
Corporate governance is the primary system that aims to ensure that a company is managed adequately and under the established collection of rules. When corporate governance is poor, it may lead to unfavorable outcomes for shareholders, including financial losses or even bankruptcy. Mr. Pitcher’s bank, after being inherited by his family members, suffered bankruptcy due to inadequate management. The trustee is suing Mrs. Pitcher’s real estate because she allegedly violated the principle of duty of care. This paper will provide an analysis of the case and how the court should rule.
Issue
The issue here is whether or not Mrs. Pitcher violated the duty of care when she failed to attend board meetings regularly.
Rule
The duty of care is defined as the principle according to which all directors and managers of a corporation should make decisions so as not to impose harm on others. Under the Tenth Amendment, each of the 50 states of the country is free to implement its versions of the law, and, therefore, the exact definition varies from one state to another (“Tenth Amendment”). The general rule, however, is that under the duty of care, directors and managers must not neglect concerns applicable to a given context (“Duty of Care”). This definition alone is not sufficient to prove that an individual did not accomplish their duty of care. The majority of states employ a multi-factor test, which includes the foreseeability of the imposed harm and the moral blame of a defendant.
Analysis
Mrs. Pitcher owned 48% of the stock, while the two sons managed the other 52%. Furthermore, the sons took full control of the company’s management. While Mrs. Pitcher is the most significant member of the board of directors due to her share of the stock, the sons are collectively more superior. It means that the decisions made by the majority of the board could not be challenged by Mrs. Pitcher. In this particular case, she would not have the capacity to resist her sons’ unfavorable decisions. Moreover, the definition of duty of care states that a person is liable if their decision is proven to be made with negligence. However, Mrs. Pitcher did not make any decisions and was absent due to her health concerns. Depression and alcoholism are health conditions, not decisions, and should not be considered as the arrangements made with neglect. Her sons are the only two participants who are guilty of the company’s bankruptcy.
Conclusion
Mrs. Pitcher is not liable for negligence, and the court should rule against the trustee’s allegations. Furthermore, the trustee should be advised to focus on the sons whose decisions led to the company’s bankruptcy. Although Mrs. Pitcher owned the most significant portion of the company’s stocks, she was absent due to her health condition. Furthermore, the fact that the management team was entirely run by the sons makes Mrs. Pitcher powerless in this situation. The collective ownership of 52% of the stock would allow the sons to make any decision without impedance. Mrs. Pitcher did not violate the principle of duty of care and should not be held accountable.
Summary
Filing for bankruptcy involves a legal process, during which an appointed trustee searches assets that can be seized to repay the company’s liabilities. In most cases, directors and managers are not held accountable. However, in this particular case, the trustee sued Mrs. Pitcher’s estate claiming that she violated the duty of care. The court should rule in favor of Mrs. Pitcher because having a health condition is not a decision.
Works Cited
“Duty of Care.” Cornell Law School, 2020. Web.
“Tenth Amendment.” U.S. Congress, 2020. Web.