For a number of years, the concept of deepening insolvency has been one of the more hotly debated issues in the insolvency arena. Two of my colleagues in the Bankruptcy & Restructuring group at Cooley Godward Kronish LLP, Michael Klein and Ronald Sussman, have written an interesting article entitled "Tide Has Turned On Deepening Insolvency – Courts Now Rejecting Theory As Cause Of Action," published in the February 2008 issue of the Journal of Corporate Renewal by the Turnaround Management Association. You can read the article by clicking on its title above.
The article gives a succinct overview of the impact of last year’s Delaware Supreme Court decisions in the North American Catholic Educational Programming, Inc. v. Gheewalla and Trenwick America cases (as well as the Chancery Court’s Trenwick decision that was adopted by the Supreme Court). In particular, the article describes how the Gheewalla decision altered the "zone of insolvency" analysis and how Trenwick’s rejection of deepening insolvency as a cause of action in Delaware has led courts in other jurisdictions to follow suit. Directors of financially troubled companies and their counsel will find the article an informative read.
For more information on the Gheewalla decision, including a copy of the Delaware Supreme Court’s opinion, click here. For more on the Trenwick decision, including copies of the Delaware Supreme Court order and Chancery Court opinion, click here.