Third-Party Consequences of Changes in Managerial Fiduciary Duties: The Case of Auditors’ Going Concern Opinions

2021 ◽  
Author(s):  
Liang Tan ◽  
Santhosh Ramalingegowda ◽  
Yong Yu
2021 ◽  
Author(s):  
Liang Tan ◽  
Santhosh Ramalingegowda ◽  
Yong Yu

This study examines the effect of managerial fiduciary duties on the likelihood of firms receiving going concern (GC) opinions from their auditors. We exploit an influential 1991 legal ruling that expanded fiduciary duties of corporate directors and officers in favor of creditors for near-insolvent Delaware firms. Our difference-in-differences test reveals an increase in GC opinions following the ruling for near-insolvent Delaware firms. Further tests indicate an increase in type I audit opinion errors and no change in audit risk after the ruling. Additional analysis shows that, after the ruling, near-insolvent Delaware firms are less likely to dismiss their auditors following the receipt of a GC report. Overall, our findings are consistent with managers and directors with increased fiduciary duties toward creditors exerting less pressure on auditors and allowing them to reveal more GC opinions. Our results highlight important third-party consequences of changes in managerial fiduciary duties. This paper was accepted by Shiva Rajagopal, accounting.


Subject SAA business rescue. Significance State-owned South African Airways (SAA) was placed into business rescue on December 5, as the government attempted to avoid the likely shutdown and disorderly liquidation of the debt-ridden and technically bankrupt airline. Business rescue involves temporary management control by ‘business rescue practitioners’ (third-party supervisors) with wide restructuring powers, curtailment of influence of other stakeholders and a temporary moratorium on creditors' rights. The government hopes by these means at best to restructure SAA as a going concern or, failing that, to provide for its orderly liquidation by negotiation with stakeholders, including creditors. Impacts A restructuring plan involving continued government bailouts for SAA will undermine Pretoria’s proposals on reining in public debt. Liquidation would pose risks for other indebted parastatals given cross-default clauses in SAA’s financing and leasing agreements. The outcome of the business rescue will be keenly watched by markets as a test of Pretoria's resolve to reform and restructure parastatals.


1970 ◽  
Vol 5 (2) ◽  
pp. 249-255 ◽  
Author(s):  
Aharon Barak

Can the members of a company in general meeting ratify a transaction of the directors by simple majority, when the latter—in breach of their fiduciary duties—have not acted “bona fide in the interests of the company”? This question is likely to prove of importance in a number of different contexts. In Bamford v. Bamford it arose in connection with the validity of an act of the directors in the sphere of the company's relations with a third party—the contention that the act was invalid having been made by the minority shareholders, who objected to ratification, and not by the third party himself. The possibility of ratification gives rise to two questions: is the general meeting of the company the competent organ to exercise this power? And, assuming that it is, can the act done in breach of a duty be ratified by it by simple majority? In the Bamford case it is only the former aspect of the problem that is considered.The articles of the company vested the power to allot shares in the directors. In exercising this power the directors failed to act “bona fide in the interests of the company”. Their act was ratified by the members in general meeting by simple majority and the validity of the ratification was challenged. Both the judge of first instance and those sitting on appeal decided that it was valid. Plowman J., in the Chancery Division, held that, since the directors had been actuated by an improper motive, they thereby lost their power of allotment, which accordingly vested in the general meeting, as the organ of the company with residual power in this respect. The general meeting—he went on to hold—could ratify the directors' action by simple majority. Harman L.J. and Russel L.J., in the Court of Appeal, reached the same conclusion— but for different reasons. In their opinion, the fact that the directors allotted the shares for an improper motive does not mean that what they did was in excess of their powers; the allotment simply became voidable. The power to remedy the defect—they held—is in the hands of the general meeting, which can exercise this power by simple majority.


Author(s):  
Aruna Nair

This book explains the rational basis of the law of tracing, and why and when English law makes claims to traceable proceeds available. Tracing enables a claimant to make a proprietary claim to an asset acquired by a defendant from a third party, on the grounds that that asset represents the ‘traceable proceeds’ of another asset that belonged to the claimant. The book argues that the rules that allow this connection between assets to be established—the rules of tracing—aim to strike a balance between preserving the autonomy of defendants in making decisions to acquire or retain assets and preventing them from exploiting their power to deprive claimants of rights by such decisions. This account of tracing explains its historical development and its application in modern contexts. It also explains the availability of claims to traceable proceeds: an exploitation of power, of the kind that tracing is concerned with, can take place only in the context of a prior relationship of ‘control of assets’, whereby one person has a legal power to vary the legal rights of another with respect to some assignable right, owes that other a duty in respect of the exercise of that power, and is able to validly exercise the legal power in breach of that duty. These relationships, which exist both at law and equity, overlap with the categories of ‘fiduciary duties’ or ‘property rights’, but share additional and distinctive characteristics that justify the availability of tracing.


2019 ◽  
Vol 38 (2) ◽  
pp. 92-102
Author(s):  
Gilbert E. Matthews

The rights and the value of preferred stock have been the subject of several Delaware court decisions. These decisions are particularly significant for understanding the importance of contractual rights as the defining attribute affecting the valuation of preferred stock. Directors' fiduciary duties are primarily to common shareholders, while obligations to preferred shareholders are primarily contractual. Preferred stocks' contractual rights, as interpreted in these decisions, directly affects the value of the preferred and the common. When common shareholders control the board, the impact on the preferred can be negative. The common may be adversely impacted when preferred shareholders, particularly venture capitalists, control the board. Some commentators have argued that, when going-concern value is less than the preferred's preference, common stockholders should be entitled to the option value of their shares.


2020 ◽  
Vol 43 ◽  
Author(s):  
Michael Tomasello

Abstract My response to the commentaries focuses on four issues: (1) the diversity both within and between cultures of the many different faces of obligation; (2) the possible evolutionary roots of the sense of obligation, including possible sources that I did not consider; (3) the possible ontogenetic roots of the sense of obligation, including especially children's understanding of groups from a third-party perspective (rather than through participation, as in my account); and (4) the relation between philosophical accounts of normative phenomena in general – which are pitched as not totally empirical – and empirical accounts such as my own. I have tried to distinguish comments that argue for extensions of the theory from those that represent genuine disagreement.


Author(s):  
Carl E. Henderson

Over the past few years it has become apparent in our multi-user facility that the computer system and software supplied in 1985 with our CAMECA CAMEBAX-MICRO electron microprobe analyzer has the greatest potential for improvement and updating of any component of the instrument. While the standard CAMECA software running on a DEC PDP-11/23+ computer under the RSX-11M operating system can perform almost any task required of the instrument, the commands are not always intuitive and can be difficult to remember for the casual user (of which our laboratory has many). Given the widespread and growing use of other microcomputers (such as PC’s and Macintoshes) by users of the microprobe, the PDP has become the “oddball” and has also fallen behind the state-of-the-art in terms of processing speed and disk storage capabilities. Upgrade paths within products available from DEC are considered to be too expensive for the benefits received. After using a Macintosh for other tasks in the laboratory, such as instrument use and billing records, word processing, and graphics display, its unique and “friendly” user interface suggested an easier-to-use system for computer control of the electron microprobe automation. Specifically a Macintosh IIx was chosen for its capacity for third-party add-on cards used in instrument control.


2008 ◽  
Vol 18 (1) ◽  
pp. 9-20 ◽  
Author(s):  
Mark Kander ◽  
Steve White

Abstract This article explains the development and use of ICD-9-CM diagnosis codes, CPT procedure codes, and HCPCS supply/device codes. Examples of appropriate coding combinations, and Coding rules adopted by most third party payers are given. Additionally, references for complete code lists on the Web and a list of voice-related CPT code edits are included. The reader is given adequate information to report an evaluation or treatment session with accurate diagnosis, procedure, and supply/device codes. Speech-language pathologists can accurately code services when given adequate resources and rules and are encouraged to insert relevant codes in the medical record rather than depend on billing personnel to accurately provide this information. Consultation is available from the Division 3 Reimbursement Committee members and from [email protected] .


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