When things are going swimmingly, a corporate board’s primary duty is to shareholders. In bankruptcy, a company’s creditors are first in line. But what about that twilight period when things are going pear-shaped but the company is not completely bust? Dubbed “the zone of insolvency,” this period can be particularly thorny for US boards because America’s bankruptcy laws allow companies to keep operating while they reorganise. Elsewhere, companies must wind up immediately and return as much as possible to their creditors.

The confusion dates to a 1991 court decision in Delaware, where many top US companies are incorporated, that said the board of a failing company may consider creditors’ needs in addition to their traditional duty to protect shareholders. Though the ruling was far from definitive, vulture funds seized on it, snapped up distressed debt and began demanding that boards put their needs first rather than balance the interests of shareholders and creditors alike. Some creditors also began to sue boards for trying to keep troubled companies afloat, saying they were liable for “deepening insolvency”.