The Second Circuit recently handed down a key creditors' rights decision Sharp Int'l Corp. v. State Street Bank & Trust Co. (In re Sharp Int'l Corp. & Sharp Sales Corp.), 2005 U.S. App.
Good Faith Lender Has No Fiduciary Duty to Other Creditors Or Its Borrower
The Second Circuit recently handed down a key creditors' rights decision <i>Sharp Int'l Corp. v. State Street Bank & Trust Co.</i> (<i>In re Sharp Int'l Corp. & Sharp Sales Corp.</i>), 2005 U.S. App. LEXIS 5241(2d Cir. Apr. 1, 2005). The court affirmed the lower courts' finding that a secured lender was <i>not</i> liable for aiding and abetting management's breach of fiduciary duty, and <i>not</i> liable for receiving a $12.25 million loan repayment from a closely held borrower it correctly suspected of engaging in massive fraud. The decision limits the scope of a lender's duties to its borrower and other creditors. Absent the lender's participation in its borrower's fraud, the lender should have no liability on a fraudulent transfer theory or on any other basis at least in New York, where <i>Sharp</i> arose.
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Michael L. Cook And Alix S. PustilnikThis premium content is locked for LawJournalNewsletters subscribers only
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