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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Court Of Chancery Explains Creditor’s Right To File Fiduciary Duty Claims
While it is generally known that creditors may only file derivative suits when the company is insolvent, there have been many open issues about what exactly that means. This decision answers many of those questions by clarifying that the creditor need only show insolvency when the suit was filed and not continuously after that date and that the insolvency need not be irretrievable. Thus, this should make it easier for creditors of insolvent companies to sue for breaches of fiduciary duty.
The opinion is also valuable for other reasons as well. It defines the solvency by the balance sheet test, for example. It outlines the duties of directors and when the business judgment rule will not protect their decisions.