fiduciary duty

Fiduciary Duties And Financial Distress In The Time Of COVID-19

Bob Eisenbach — Mon, 23 Mar 2020 14:58:51 +0000

The COVID-19 pandemic has caused unprecedented economic disruption, creating sudden financial distress across industries. Companies are now facing impacts ranging from a dramatic decline in revenue of uncertain duration, to potential setbacks to M&A transactions, to delayed or canceled financing rounds. With even some previously well-performing companies potentially entering the so-called zone…

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

Bob Eisenbach — Tue, 16 Feb 2016 16:37:42 +0000

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 when investors have decided not to fund and the company…

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Delaware Supreme Court Affirms Ruling Protecting Managers Of Insolvent LLCs

Bob Eisenbach — Wed, 14 Sep 2011 14:31:40 +0000

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 case…

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New Ruling Finds Important Protection For Managers Of Insolvent Delaware LLCs

Bob Eisenbach — Tue, 16 Nov 2010 12:25:57 +0000

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, click on the case…

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

Bob Eisenbach — Tue, 23 Mar 2010 16:08:09 +0000

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 92 (Del. 2007). To read that decision…

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

Bob Eisenbach — Thu, 16 Aug 2007 04:58:06 +0000

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 and for the reasons assigned…

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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

Bob Eisenbach — Tue, 22 May 2007 05:10:30 +0000

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 whether creditors can sue directors of…

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

Bob Eisenbach — Tue, 03 Apr 2007 02:41:01 +0000

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 for "deepening insolvency" under Delaware law.

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

Bob Eisenbach — Mon, 18 Sep 2006 15:57:19 +0000

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: A copy of the decision is available here. Thanks to the Delaware Business…

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

Bob Eisenbach — Fri, 18 Aug 2006 04:20:07 +0000

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 is the lack of clarity…

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