The Rights and the Remedies of Corporate Creditors

While both shareholders and creditors provide capital for corporate enterprises the relation of creditors to the corporation and its assets is different in many important respects from that of shareholders. Creditors possess certain general rights and remedies which may be invoked in pursuit of their claims. And likewise these too may be refined and extended by contract. There is one notable difference, however: creditor-debtor relations between persons in the absence of special contract are, in general, not unique simply because one (or both) of the "persons" happens to be a corporation.

That is to say, creditor-debtor relations in no sense spring from the existence of the corporate form; they would exist, at least in their simpler forms, had the corporation as we know it never developed. The concept and implications of stock ownership, on the other hand, are, in a very real sense, directly associated with and dependent upon the presence of the corporate form. If only the ordinary rights of creditors were involved there would be no reason to include here a special chapter dealing with creditors' rights. It so happens, however, that the application of the time-honored principles of creditor-debtor relations to corporations has brought about important extensions of the basic ideas and practices commensurate with the marked complexity of the modern business corporation. While the underlying philosophy has persisted, its application to involved situations has led to forms and procedures that are unique in important respects: the idea of receivership, for instance, is simple enough; but an understanding of the basic idea itself gives but a faint suggestion of what receivership may mean for a large corporation.

Again, since corporations, unlike real persons, may attain perennial existence, there are not the same obstacles to very long-time creditordebtor relations. It would be unusual for real persons to draft a contract calling for the repayment of a large principal sum a century hence, yet such distant due dates are a commonplace among corporate debtors. Furthermore, legal ingenuity has developed a means whereby a corporation through a bond indenture may deal with a number of identically situated creditors as if they were one. Indeed, the relative permanency of corporate existence and its associative character have permitted an enormous ramification and elaboration of the simpler creditor-debtor relations between real persons. And it is mainly these which give corporate creditor relations the status of a special study within the broader field.
It is helpful, notwithstanding, first to take cognizance of the underlying position of creditors respecting debtors' property in the absence of special contract.