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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

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

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

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

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

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

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

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

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

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