In The (Red)®

In The (Red)®

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Tag Archives: fiduciary duty

The Venture-Backed Company Running Out Of Cash: Fiduciary Duties And Wind Down Options

Posted in The Financially Troubled Company
Many start-up companies backed by venture capital financing, especially those still in the development phase or which otherwise are not cash flow breakeven, at some point may face the prospect of running out of cash. Although many will timely close another round of financing, others may not. This post focuses on options available to companies… Continue Reading

Delaware Supreme Court Affirms Ruling Protecting Managers Of Insolvent LLCs

Posted in Recent Developments, The Financially Troubled Company
Creditor Derivative Claims Against Fiduciaries Of Insolvent Corporate Entities. In a 2007 decision in North American Catholic Educational Programming, Inc. v. Gheewalla, et al., 930 A.2d 92 (Del. 2007), the Delaware Supreme Court held that directors of an insolvent Delaware corporation could be sued derivatively by creditors for breaches of fiduciary duty. For a discussion of the… Continue Reading

New Ruling Finds Important Protection For Managers Of Insolvent Delaware LLCs

Posted in Recent Developments, The Financially Troubled Company
Derivative Claims Against Directors Of An Insolvent Delaware Corporation. With its 2007 decision in North American Catholic Educational Programming, Inc. v. Gheewalla, et al., 930 A.2d 92 (Del. 2007), the Delaware Supreme Court held that directors of an insolvent Delaware corporation could be sued derivatively by creditors for breaches of fiduciary duty. To read that decision,… Continue Reading

California Court of Appeal Provides Guidance For Directors Of Financially Distressed California Corporations

Posted in Recent Developments, The Financially Troubled Company
As I have reported over the past several years, Delaware courts, including the Delaware Supreme Court, have addressed the nature of a director’s fiduciary duties when a Delaware corporation is insolvent or in the "zone of insolvency," most notably with the 2007 decision in North American Catholic Educational Programming, Inc. v. Gheewalla, et al., 930 A.2d… Continue Reading

Delaware Supreme Court Issues Long-Awaited Decision In Deepening Insolvency Case

Posted in Business Bankruptcy Issues, Recent Developments, The Financially Troubled Company
On August 14, 2007, the Delaware Supreme Court, sitting en Banc and following oral argument, issued its decision in the Trenwick America Litigation Trust v. Billet deepening insolvency case. Rather than write its own opinion, the Delaware Supreme Court released a two-page order affirming Vice Chancellor Strine’s August 10, 2006 Chancery Court decision "on the basis of… Continue Reading

Delaware Supreme Court Addresses, For The First Time, Whether Creditors Can Sue Directors For Breach Of Fiduciary Duty When The Corporation Is Insolvent Or In The Zone Of Insolvency

Posted in Recent Developments, The Financially Troubled Company
Almost sixteen years ago, the Delaware Chancery Court’s decision in Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., 1991 WL 277613 (Del. Ch. 1991), helped introduce the terms "vicinity of insolvency" and "zone of insolvency" into the legal and business lexicon. Since then, the Chancery Court issued a number of decisions on the question of… Continue Reading

Report On The Delaware Supreme Court’s Recent Oral Argument In The Trenwick America Deepening Insolvency Case

Posted in Recent Developments, The Financially Troubled Company
One of the most important recent decisions by the Delaware Court of Chancery in the insolvency area was the August 10, 2006 opinion in the Trenwick America Litigation Trust case. As discussed at length in an earlier post, the Trenwick America decision by Vice Chancellor Strine (available here) squarely held that there was no cause of action… Continue Reading

New Delaware Decision Limits Direct Creditor Claims Against Directors In The “Zone Of Insolvency”

Posted in Recent Developments, The Financially Troubled Company
The Delaware Court of Chancery has issued another decision involving creditor claims against directors of a financially troubled corporation. In North American Catholic Educational Programming, Inc. v. Gheewalla, et al., 2006 WL 2588971 (Del. Ch. Sept. 1, 2006), Vice Chancellor Noble made two important holdings: First, although derivative claims can be brought, creditors may not assert… Continue Reading

Deepening Insolvency: New Delaware Decision Holds That No Such Cause Of Action Exists

Posted in Recent Developments, The Financially Troubled Company
Over the past few years, a number of bankruptcy and other federal courts have held that plaintiffs, often bankruptcy trustees or other bankruptcy estate representatives, could pursue a cause of action against a corporation’s directors and others for "deepening insolvency."  What has made a deepening insolvency claim so attractive to plaintiffs and troubling to defendants… Continue Reading

Directors Of Insolvent Corporations: Duties And Protections

Posted in Recent Developments, The Financially Troubled Company
The fiduciary duties that directors owe a Delaware corporation and its shareholders are generally held to expand to include the interests of creditors when the company is insolvent or in the "zone of insolvency."  A hot topic among directors, particularly those serving on boards of troubled companies, is how best to meet their fiduciary duties… Continue Reading